Oil dips below $50, and stocks mirror the fall

Chris Mooney (c) 2015, The Washington Post. The Dow Jones industrial average plunged more than 300 points Monday in tandem with a steep slide in oil prices that briefly brought the price of a barrel of West Texas Intermediate crude oil below $50.

The Dow ended down 331.34 points, or 1.9 percent, as WTI crude, a U.S. benchmark, closed at $50.04 per barrel — the lowest closing price since April 2009.

The decline in oil prices from their June 2014 high has been dramatic. Prices at that time briefly topped $107 per barrel.

So when will the decline stop?

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Brian Youngberg, a senior analyst at Edward Jones who focuses on the energy sector, said he’s expecting an oil-price bottom in the first half of 2015 but sees possible downside pressures in the interim. The reason is simple: supply, supply, supply.

“Russia is producing at the highest levels since the Soviet era, and Iraq is producing at its highest levels since the ’80s,” Youngberg said. “There’s just plenty of oil to go around right now, and not enough places to put it.”

U.S. oil production, buoyed by the shale-oil boom, continued to tick up throughout 2014, according to U.S. Energy Information Administration data, exceeding 9 million barrels per day in October 2014. Four years earlier, in October 2010, it was only 5.6 million barrels per day.

And, of course, the cause of the price decline is the decision by the Organization of the Petroleum Exporting Countries, whose members produce about 40 percent of global crude, not to cut production levels in November. In sum, oil prices continue to plunge because of a persistent supply glut in the global market.

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Monday’s price drop may have stung investors, but U.S. consumers are more than happy to put the resulting cheap gas in their tanks. The national average price for regular gasoline Monday was $2.20 a gallon, a plunge of well over a dollar from a year ago, according to AAA. The auto club said last week that declining gas prices saved Americans $14 billion at the pump in 2014, with the bulk of the savings coming at the end of the year.

The gas-price plunge has been going on for more than 100 straight days, since Sept. 25, AAA said. The streak is the longest on record, including during the Great Recession, when prices fell for 86 straight days. During the current period of steep declines, prices have plunged an average of $1.15 nationwide.

“Drivers can find at least one station selling gas for less than $2 per gallon in 40 states,” AAA spokesman Michael Green said. “About 35 percent of all U.S. stations are selling gas for less than $2 per gallon today. The number of stations selling gas below $2 will continue to grow as prices drop even further this week.”