Econintersect: Oil dropped more than 2 percent Monday (May 23) as the dollar strengthened and expectations for an economic slowdown in China built. Benchmark crude for July delivery lost US$2.40, or 2.4 percent, to settle at US$97.70 per barrel on the New York Mercantile Exchange. In London, Brent crude gave up US$2.29 or 2 percent, to settle at US$110.10 per barrel on the ICE Futures exchange.Crude dropped as the dollar rose against other currencies. Oil is priced in dollars, and it tends to fall as the dollar rises and makes crude more expensive for investors holding foreign money. The U.S. Dollar Index, which measures the dollar against other major currencies, rose 0.7 percent amid concerns about Europe’s debt crisis. The decline in oil prices provided some relief at the pump for U.S. drivers. From Reuters:
The national price for regular, unleaded gasoline fell 11.1
cents over the last week to $3.85 a gallon.
Despite the drop, gasoline is $1.06 higher than a year ago, based on the department's weekly survey of service stations.
Several cities saw even more savings, with weekly prices down 24 cents in Cleveland, 15 cents in Chicago and 14 cents in Houston. Fuel prices fell 10 cents in Los Angeles and San Francisco.
In New York, the price of WTI (West Texas Intermediate Crude) has dropped $17 a barrel from its high on May 2. According to Prof. James Hamilton, Professor of Economics at the University of California, San Diego, writing at GEI Analysis, this much decline in the price of oil should produce a $0.40 a gallon decline in the price of gasoline. However, the decline has only been about $0.15 from the high earlier this month. If oil prices were to remain around $97 a barrel another $0.25 drop in unleaded regular should be expected in the coming weeks. Some are projecting that the price could drop to $3.50.