Oil prices dropped sharply on Wednesday, deepening a selloff that has already brought relief to drivers at the gas pump.
US oil tumbled 5.1% to $82.41 a barrel in recent trading. That’s the lowest intraday price since January 24. US crude is now down by more than one-third since briefly hitting $130 a barrel in early March.
Brent crude, the world benchmark, dropped below $90 a barrel for the first time since February 8. Brent was recently down 4.6% to $88.55 a barrel.
The selling comes just days after OPEC and its allies, known collectively as OPEC+, reversed course by cutting production to support prices.
Analysts cited a range of factors behind Wednesday’s losses, including concerns about the health of the world economy and the skyrocketing US dollar. A stronger US dollar tends to weaken demand for oil overseas.
“High prices are already starting to weigh on the European economy, and fears of contagion are causing a vicious selloff in oil prices today,” said Matt Smith, lead oil analyst Americas at Kpler.
The good news is that the drop in oil prices should continue to lower prices for consumers at the gas pump.
Since hitting $5.02 a gallon on June 14, the national average for regular gas has dropped 85 days in a row. A gallon of regular now fetches $3.76, down 31 cents over the past month, according to AAA. There are now 15 states averaging $3.50 or less, including North Carolina, Iowa and Florida.
Tom Kloza, global head of energy analysis at the Oil Price Information Service, is skeptical the drop in energy prices will continue – especially given recent threats from Russian President Vladimir Putin and other Kremlin officials, who have said they could retaliate against the West by cutting off energy exports.
“Putin has indicated he will do crazy things,” said Kloza. “This is an interlude, a buying opportunity. There’s a false sense of security.”
Responding to the oil price cap announced by the G7 on Russian crude, Putin said his country could reduce exports to zero.
“We will not supply anything at all if it is contrary to our interests, in this case economic ones,” Putin said Wednesday. “Neither gas, nor oil, nor heating oil – we will not supply anything.”
Another risk is that oil prices drop to levels that force OPEC+ to respond more forcefully by aggressively reining in production following Monday’s small output cut.
“OPEC+’s move was a not-so-veiled threat that they stand ready to defend prices,” Kloza said. “We are getting to numbers where the Saudis, Emirates and Kuwaitis would be willing to cut back on production.”