National average gasoline prices have dropped about a quarter per gallon over the past two weeks, ending Thursday at $3.68. Much of the retreat has been due to a softer tone in the crude oil market, spurred by global economic concerns.
Crude oil futures tumbled more than $6 per barrel on Wednesday of this week, and fell to a four-month low yesterday before rallying late in the trading session to close 80 cents per barrel higher at $113.81 for brent crude. Light, sweet crude, also called West Texas Intermediate, ended the session at $95.13 per barrel.
Crude oil traders have been concerned this week that Greece’s financial troubles would spread beyond its borders. Traders also indicated a concern by the retreat in the stock market and a report from the U.S. Department of Energy showing weakening U.S. oil demand. Traders closely watch reports on oil demand levels in the U.S., and note that signs show the economic recovery has stumbled which could result in weaker oil and fuel demand.
Also weighing on the market was comments from the International Energy Agency on Thursday that the world still has a cushion of surplus oil, although the IEA expects demand to rise this year to 89.3 million barrels per day, up 120,000 barrels per day from their previous estimates.
On Wednesday the Department of Energy said average U.S. oil demand over the last four weeks fell 3.2 percent versus the same period last year. Refinery runs also declined, indicating refiners are slowing production.
The International Energy Agency, despite the recent bearish news, boosted its five-year oil price forecast by $19 per barrel, saying demand is expected to rise more than previously expected.
The IEA also said there is a “clear need” for additional oil output from the Organization of Petroleum Exporting Countries (OPEC). Last week OPEC failed to reach a consensus on higher production quotas. Without higher OPEC output, the IEA says, the oil market will suffer from a lack of supply which will result in “overheating prices” and damage to the global economy.
OPEC officials, however, claim there is no need to release additional oil supplies, as the IEA has advocated. Last week OPEC kept oil production quotas set in 2008 in place. OPEC Secretary-General Abdallah el-Badri said an average price per barrel of $11 was something he called “reasonable.”
OPEC members bound by production quotas are producing about 29 million barrels of oil per day, higher than the 24.8 million barrels set as a quota in 2008.