Oil prices tumbled to their lowest level in 12 years Tuesday – at one point dropping below $30 a barrel – in response to fears of slumping demand in China and a strengthening U.S. dollar.
The top grade of light, sweet crude oil for near-term delivery fell 71 cents to close at $30.42 a barrel on the New York Mercantile Exchange, its lowest level since December 2003.
Two years ago, oil was approaching $100 a barrel. Since then, global oil production has far outpaced demand and, more recently, China’s economic problems and the dollar’s appreciation have put added pressure on prices.
The fallout from the drop in oil prices extended Tuesday to oil giant BP, which said it planned to cut about 4,000 jobs in its exploration and production unit this year. The London-based company currently employs about 80,000 people.
Some OPEC nations also reportedly are mulling whether to hold an emergency meeting of the 13-nation Organization of the Petroleum Exporting Countries to weigh changes in production in the face of the price drop.
The oil markets are concerned that the slowdown in China’s economy, the world’s second-largest, will suppress demand even more.
And, because oil is priced in dollars, the stronger American currency is making oil more expensive to buyers holding other currencies.
“This is a significant downward change in the fortunes of the oil and gas industry, no question about it,” said John Graves, founder and president of Graves & Co., an industry consulting firm in Houston.
The drop in crude prices has helped gasoline prices decline. The national average gasoline price Tuesday was $1.956 a gallon.