The benchmark US oil price fell below $80 a barrel on Friday for the first time since January as traders grew increasingly concerned that much of the world was either heading into a recession or already in recession. a.
The steady decline in prices from more than $120 a barrel a few months ago could easily be reversed if the European Union severely limits its purchases of Russian oil as it has threatened to do. But for now, the drop in oil prices has offered consumers some relief from inflation.
Oil prices had been rising for most of the past 12 months and accelerated sharply when Russia invaded Ukraine in February. The US benchmark oil price, West Texas Intermediate, was down 5 percent at $78.74 a barrel, and the global benchmark, Brent, was down 4 percent, at about $86.15.
The average price of a gallon of regular gasoline on Friday was $3.69, down 20 cents from a month ago. The price would be lower were it not for a fire this week at BP’s refinery in Oregon, Ohio, which pushed up fuel prices in the Midwest.
World oil supplies are tight, but demand for the fuel has also been weak. China’s energy use, which has been a major driver of oil prices for the past two decades, has fallen sharply as the country’s government has frequently locked down large cities and regions to prevent the spread of the coronavirus.
Hong Kong on Friday eased its quarantine for international travelers. That announcement could signal that Chinese officials could eventually lift strict pandemic controls elsewhere as well.
Another reason why oil prices have fallen is that the US dollar has strengthened against other currencies. Because oil is priced in dollars, fuel becomes more expensive for people and businesses in countries with weaker currencies, even if there is no change in the underlying price of oil. That, in turn, reduces the demand for the raw material and pushes down its price in dollars.
Many economists expect the price of oil to rise in the long term, especially if the war in Ukraine continues. Russia normally supplies about 10 percent of the oil consumed around the world. As sanctions tighten and Russia’s oil industry deteriorates from a lack of Western technology, its output could fall substantially, limiting supply. A stronger Chinese economy could also push prices higher.