Energy Prices Forecast

Economic Forecasts

How Low Can Oil Prices Fall?

Kiplinger's latest forecast on the direction of energy prices


GDP -2.0% growth in 2020, down from 2.3% in 2019 More »
Jobs Job losses in Q2 and Q3, strong pickup after that More »
Interest rates 10-year T-notes staying below 1.0% in March and April More »
Inflation 1.8% by the end of '20, from 2.3% at end '19 More »
Business spending Down in '20 because of global recession fears More »
Energy Crude trading as low as $15 per barrel More »
Housing Total starts up 3.2% in '20 More »
Retail sales Retail and food service sales, excluding autos and gas, should rise 3.5% in 2020 More »
Trade deficit Widening 6% in ’20 More »

Good news if you actually have anywhere to drive to: Gasoline is just going to get cheaper and cheaper as global oil demand plummets because of the coronavirus pandemic. The national average price of regular unleaded is down to $2.01 per gallon today, from $2.13 a week ago and $2.45 a month ago. Many states are already enjoying averages below $2. (How does $1.57 in Oklahoma sound?) Diesel is now averaging just $2.61 per gallon nationwide. In the coming days, the price at the pump is sure to fall further.

Oil prices are getting crushed by the combination of shrinking demand and oversupply caused by a rift between Russia and Saudi Arabia, the world’s second- and third-largest oil producers. After the two countries failed to reach an agreement on curbing output in response to the virus-induced demand slump, the Saudis vowed to boost output by more than 2 million barrels per day in a bid to regain market share from Russia. Moscow in turn threatened to up its production, too. So the world faces a wave of excess supply just when demand is in free fall.

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Benchmark West Texas Intermediate crude recently fell below $20 per barrel, down from its January high of $63. If the Saudis and Russians can’t agree on a production cut, WTI could slip even farther. $15 per barrel looks like a real possibility. Eventually, such low prices should force oil producers everywhere to cut output, which would enable an eventual price rebound. But that could be a painful process if Russia and Saudi Arabia continue their game of chicken.

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Natural gas prices remain cheap, too, though that has less to do with the coronavirus and more to do with a long-running supply glut. The benchmark gas futures contract recently traded at $1.66 per million British thermal units. Right now, demand for gas is low because of mild spring weather. But in the coming months, prices could tick higher. Currently, the gas market is oversupplied largely because many of the oil wells being drilled in the United States yield gas as a by-product. If low oil prices cause oil drillers to cut back, they’ll stop producing so much excess gas, too. That plus stronger demand this summer from gas-fired power plants could cause a modest rally in gas prices.

Source: Department of Energy, Price Statistics