And although prices tend to drop in the fall and when the economy turns sour, following the law of supply and demand, the current pattern is something different, Dodds said. “The biggest factor this time is that crude (oil) is dropping like a rock, so retail prices are following suit,” she said.
The reasons for the drop in crude prices are matters for analysis and debate. But it’s clear that more oil is coming onto the market from sources outside the Middle East, including oil shale fields in the United States. The U.S. Energy Information Administration is forecasting declines in oil consumption in Japan, Europe and the United States as the industrialized nations increase efficiencies and turn to other energy sources.
The growing diversity of oil sources outside the Middle East has eased investors’ fears about disruption of oil supplies due to conflicts in the Middle East and other oil-producing foreign hot spots, Dodds believes. “The U.S. is producing more oil domestically, so we are more insulated from disruptions than even a few years ago,” she said. Also, she said, the Organization of Petroleum Exporting States so far has been unwilling to cut its production levels, likely to maintain its 40 percent share of world oil production.
On Wednesday, there was new evidence that the end of falling prices is not in sight: crude oil prices fell to 27-month lows.