Oil prices dropped below $70 a barrel for the first time in 14 months on Thursday, prompting the OPEC cartel to call for an emergency meeting next week to establish some stability in prices that have swung wildly along with the stock market this year.
Oil prices have tumbled by nearly $40 a barrel in just three weeks amid growing signs that demand for energy will slow along with weakening economies around the world. As recently as July, oil was trading at a record of $145 a barrel.
The decline in oil prices could provide a form of stimulus to the economy as consumers pay less to fill up their tanks. If oil prices stay at current levels, consumers would have $250 billion more, over a year, to save or spend elsewhere, according to Lawrence Goldstein, an energy economist. Some analysts expect oil prices to keep declining, perhaps to as low as $50 a barrel in coming months.
Americans will probably see lower energy bills this winter, as gasoline and heating oil futures also dropped sharply on Thursday. Gasoline prices now average $3.08 a gallon, down from a summer peak of $4.11 a gallon, according to AAA.
The decline in oil prices came after a government report showed a larger-than-anticipated rise in domestic crude oil stockpiles as Americans use less oil, in part because they are driving less. In the past month, domestic oil demand has fallen to its lowest level since June 1999, at 18.6 million barrels a day, according to the Department of Energy.
Oil settled down $4.69 a barrel at $69.85 on Thursday. The drop, along with other promising signs on the inflation front, was among the reasons investors bid stocks higher, with the Dow Jones industrial average closing up 401.35 points at 8,979.26,
Natural gas prices have also tumbled since their summer peak of $13.58 per thousand cubic feet. On Thursday, natural gas futures rose 19 cents, to $6.81, after a report showed that stockpiles rose less than expected.
While consumers may have reason to cheer the falling oil prices after such a sharp run-up, the wild roller coaster of volatility is a nightmare for oil producers and petroleum executives who say they need more stability to better plan long-term projects to develop new sources of oil.
If they cannot be confident that they will get a stable return on their investment, they may hold back. That in turn could set the stage for possible shortages of oil and higher prices when global demand picks up again.
The sharp drop-off has forced OPEC’s hand. The cartel said just last week that it would meet in mid-November, after the U.S. elections. But on Thursday it rescheduled its emergency session for next Friday, Oct. 24.
The cartel’s producers, who control 40 percent of global experts, could curb their output by about a million barrels a day to try to stem the drop in prices, according to analysts.
From its inception the oil industry has gone through countless cycles, with oil companies cutting investments when prices fell. The price collapse of the 1980s forced companies to slash investments and sparked a wave of large mergers through the industry. But this retrenchment left the world scrambling for oil when demand from Asian and Latin American economies soared.