Oil prices tumbled to the lowest level in more than eight months after Standard & Poor’s downgraded the U.S. government’s credit rating.
Gasoline prices will probably fall to an average of between $3 and $3.50 a gallon in the next 45 to 60 days nationally, says Oil Price Information Service Chief Oil Analyst Tom Kloza.
The September Brent crude oil contract tumbled $6.47 to $102.90 a barrel, while West Texas Intermediate (WTI) light sweet crude oil for September delivery tumbled $5.57 to settle at $81.31.
Trading volumes spiked as the oil sell-off accelerated late in the day, triggered by a rapid drop in stock markets that sent the S&P 500 Index down 6 per cent, the biggest daily drop since late 2008.
In California, the average price had been declining and as of Tuesday had fallen 1.3 cents from the previous week to $3.798 a gallon. A year earlier, the state’s average was 62.6 cents lower, at $3.172. Tom Kloza, chief oil analyst for the Oil Price Information Service, said that the state’s prices could be headed as low as $3.25 to $3.30 a gallon at some of the cheaper retail outlets.
Shares of major oil companies fell the most in two years. Irving-based Exxon Mobil (ticker: XOM) dropped $4.63 a share, or 6.2 percent, to close at $70.19. Chevron ( CVX) stock fell $7.36, or 7.5 percent, to $90.25.
So yes, gas and heating oil prices may drop. But probably not for long – demand from emerging markets, especially China, will eventually put upward pressure on prices, even if the US economy slumps.