Crude can’t Stop Slipping
Crude oil prices dropped near $32 per barrel this week, the lowest price in almost a dozen years. Prices are continuing to feel pressure from record-high supplies, and Chinese economic concerns added to dismal outlooks for global oil demand in the coming months.
The drop came despite growing turmoil in the Middle East, where tensions between Saudi Arabia (Sunni) and Iran (Shiite) are rising.
The two Islamic nations cut diplomatic ties after the Saudis executed a Shiite religious leader, which incited Iranian protesters to attack the Saudi embassy in Iran. Deepening the gulf between the two nations, Iran claimed Thursday that Saudi Arabia intentionally bombed the Iranian embassy in neighboring Yemen. The two nations are effectively fighting a proxy war in Yemen between the Sunni-led Yemeni government and Shiite Houthi rebels.
Under normal conditions, the fear of war between the Middle East’s two largest producers would cause an explosion in oil prices, but this week’s news barely garnered a small rally.
Some oil analysts take this muted response as yet another sign that prices could continue falling toward $20 per barrel, a price that hasn’t been seen since the early 2000’s.
As petroleum dropped this week, so too did ethanol, which is mixed into gasoline for automobile fuel. This week, ethanol futures dropped as low as $1.30 per gallon, the lowest price in over a year. Nearly 40% of US corn goes to make ethanol, which means that falling ethanol can hurt farmers’ bottom line.
As of midday Friday, March corn was worth $3.56 per bushel, near a one-year low.