Oil prices coughed up all of their 2008 gains and then some Thursday, stopping only after crashing below the $70-a-barrel barrier, a level not seen since the summer of 2007.
The betting money is that oil has much further to fall, perhaps as low as $50 a barrel before the end of the year.
Economists say that would give U.S. consumers the rough equivalent of another economic stimulus package, dragging retail gasoline prices back down as low as $2.20 a gallon. Natural gas and heating oil prices also are cratering, which would help with winter heating bills.
One possible hitch came Thursday when the Organization of the Petroleum Exporting Countries called for an emergency meeting next week to discuss whether to cut production. Ministers from OPEC, which pumps more than 40 percent of the world’s oil, had planned to meet after the U.S. election but now will gather in Austria on Oct. 24.
“OPEC will try to get prices to stabilize around $70, but $70 oil is still not cheap with global economies slowing and demand running this low,” said Fadel Gheit, senior energy analyst for Oppenheimer & Co.
In New York futures trading, the U.S. benchmark grade of oil fell to $68.57 a barrel before closing at $69.85, down $4.69. It was the lowest settlement price since Aug. 23, 2007.
Oil has declined more than 50 percent from July’s record high above $147, largely on fears that slumping world economies would further dampen use of oil and its products.
Traders said the market reacted negatively to an Energy Department report Thursday that U.S. oil and gasoline stockpiles were sharply higher than expected and gasoline demand was down 5.2 percent. Phil Flynn, senior market analyst for Alaron Trading Co., said traders were trying to catch their breath by the end of the day.
Meanwhile, pump prices continued to plunge. The average price for a gallon of self-serve regular Thursday was $3.084 nationwide, down 4.1 cents from Wednesday, according to AAA. Analysts predicted that the average could drop to $2.20 to $2.50 by New Year’s Day.
“We’re dropping like a rock today,” said Tom Kloza, chief oil analyst for the Oil Price Information Service. “We are on a rendezvous with lower prices across the country.”
But economists aren’t optimistic about what consumers would do with the money they figured to save. With retirement accounts battered, home values hurting and confidence bruised, Americans figure to catch up on their bills and savings at a time when the economy needs them to shop, some experts say.
“More than 70 percent of the U.S. economy is consumer spending, and the real risk going forward is that they won’t spend,” said Edward E. Leamer, director of the Anderson Forecast at the University of California, Los Angeles. “Take your wife or your husband out for a nice meal at a restaurant. Buy a pair of shoes, the kind of normal things we used to do.”
Lisette Mata, a 21-year-old customer service representative for a check-cashing business, was pumping gas at a Los Angeles Chevron as a worker updated the station’s price sign. When the price for regular changed from $3.49 to $3.43 a gallon, she looked disgusted.
“What would I do with the money? I’d pay bills, buy groceries. I can’t afford anything else right now,” Mata said.
Abel Sahid, a 49-year-old Los Angeles plumber, said his biggest hope for lower gas prices was that more people might be able to afford to hire him.
Traditionally, lower fuel prices lead consumers to drive more and to buy larger, less fuel-efficient vehicles. That was the effect of an oil-price drop in 1980, which, experts say, ultimately led to the advent of sport utility vehicles. But that might not be the case this time, said Mary Novak, analyst at Global Insight.
“It took a pretty long period of high oil prices to convince people not to buy SUVs,” she said. “It’ll take a while, too, for them to be convinced by low prices to start to buy them again.”
Lower oil prices would help any business dependent on the internal combustion engine, said Joe Stanislaw, independent senior adviser for Deloitte LLP. He cites taxis, limousine services and pizza delivery companies as examples.
“This is like a big tax cut to those businesses,” said Stanislaw, who added that with fuel expenses reduced, companies could begin to reduce fuel surcharges or even lower prices.
Another possible boon to consumers and the economy was the sharp decline in natural gas prices. In July, natural gas futures hit a peak of $13.57 per million British thermal units, a common measurement for large natural gas trades. On Thursday, natural gas closed at $6.70 per million BTUs, a decline of more than 50 percent.
That will save a lot of people money, Global Insight’s Novak said. In regions where a lot of power generation comes from natural gas, she said, “Electricity prices will be coming down and could very well be lower than they were a year ago.”