A significant uptick in domestic oil production combined with declining worldwide demand for crude is causing global oil prices to fall, according to the Energy Information Administration (EIA) – and thus is helping spur further decreases in U.S. diesel and gasoline prices.
The price of North Sea Brent crude oil has fallen to around $91 per barrel, EIA noted – the lowest level in more than two years and about 21% lower than its year-to-date peak of $115 per barrel back on June 19. Before its recent decline, average monthly Brent spot prices had traded within a narrow $5 per barrel range, from $107 to $112 per barrel, for 13 consecutive months through July 2014, the agency said.
During that period of low price volatility, substantial oil supply disruptions in the Organization of the Petroleum Exporting Countries (OPEC) were offset by increases in U.S. production and weaker-than-expected global demand. Recently, though, the resumption of significant Libyan oil production – combined with the weakening outlook for global oil demand – put more downward pressure on global crude prices.
The sustained increase in Libyan production over the summer—increasing from 200,000 barrels per day (bbl/d) in June to 900,000 bbl/d at the end of September—has added supplies to an already well-supplied light sweet crude market in the Atlantic Basin, despite the fact that Libya's recent production has not come close to its previous level of 1.65 million bbl/d in 2010 and 2011, before fighting that occurred during the Arab Spring.
That’s also helping push down average retail pump prices for diesel and gasoline in the U.S., EIA pointed out.
This week, the national average for diesel dropped 3.5 cents to $3.698 per gallon, which is 18.8 cents per gallon compared to the same week in 2013, the agency reported.
Diesel prices also declined in every region of the country this week with none exceeding the $4 per gallon mark.
EIA said diesel decreased the most on the West Coast where, without including California, diesel prices dropped 5.3 cents to $3.802 per gallon. When including California, diesel on the West Coast dropped 4.2 cents to $3.891 per gallon.
The two other biggest declines this week occurred in the Central Atlantic region – down 4.6 cents to $3.784 per gallon – and the East Coast, with a 4.1 cent drop to $3.714 per gallon.
EIA’s data also indicated that gasoline prices dropped significantly this week across the U.S. as well, with the national average falling 9.2 cents to $3.207 per gallon – some 14.27 cents per gallon cheaper compared to the same week in 2013.
Gasoline declined the most in the Midwest, with prices falling 11.1 cents to $3.84 per gallon, followed by the Lower Atlantic and Gulf Coast with a 10.1 cent decline each to $3.15 and $3.008 per gallon, respectively.
EIA also emphasize that, over the past several years, increasing domestic light sweet crude production has significantly reduced light sweet crude imports to the U.S. and those reduced imports – sourced primarily from Africa – became available to replace Libyan production lost during a time of civil war and subsequent unrest.
As a result, total U.S. net imports of energy as a share of energy consumption fell to their lowest level in 29 years for the first six months of 2014, the agency said.
Total energy consumption in the U.S. for the first six months of 2014 was 3% above consumption during the first six months of 2013, but consumption growth was outpaced by increases in total energy production. These changes led to a 17% reduction in net imports compared with the first six months of 2013, EIA noted.
Weakening global demand for oil, particularly in Europe and Asia, is also an important factor in the pricing falloffs for crude and fuels alike, EIA added.
Economic growth in 2014 outside of the U.S. has been slow, the agency pointed out, with recent data appearing to confirm lower-than-expected growth, particularly in Asia and Europe.
For example, China reported that its industrial production has risen at the slowest pace since 2008, while in Europe, the Organization for Economic Cooperation and Development (OECD) has reduced expectations for economic growth through 2015 after data showed second-quarter 2014 gross domestic product (GDP) fell in Germany and Italy while stagnating in France.