REGION — Gas prices are continuing to drop, down seven cents from last week and $1.23 from last year.
Energy Analyst Mishka Vom Dorp with Sprott Global Resource Investments Limited, said the annual savings to each American household are substantial.
“The (U.S. Energy Information Administration) estimates that it’s going to save each household $1,400 a year, saving the United States another $140 billion,” Vom Dorp said. “So this is actually a pretty good tax break for everybody here in the United States.”
He believes the prices will continue to drop, possibly dipping below $40 a barrel because, he said, the members of the oil policy cartel OPEC, particularly Saudi Arabia, want to continue driving the price down to get the other members in line.
“When you have the Saudi prince come out and say that a $100 barrel is never going to happen again, that’s a clear indication that they want only one thing and that’s a lower price,” Vom Dorp said.
According to Vom Dorp, OPEC is dysfunctional and some of the countries are overproducing oil to lower the price and get the other members in line to meet the quotas the next time they’re set.
He also said OPEC is trying to disrupt U.S. energy production.
“At these levels very few U.S. shale players will actually be able to make any money,” Vom Dorp said.
He went on to say that most U.S. companies aren’t sustainable at their current output levels.
“Most U.S. oil companies cannot keep production at current output levels since they rely a great deal on debt to fund further growth,” said Vom Dorp. “If oil prices remain flat for an extended period, we will see their credit facilities cut, and their production capabilities will fall with it.”
Vom Dorp believes the prices aren’t going to go up anytime soon because Saudi Arabia’s large foreign currency reserve allows the country to withstand lower prices at the pump.
“They have $750 billion in foreign currency reserves which can last them 30 months of a lower oil price, so yeah they have time,” Vom Dorp said.
The flip side, according to Vom Dorp, is that when prices go up again, they’ll go up even higher.
“Once the objectives that the Saudis want have been met, they’ll look to cut production, increase the price and we’ll have a new higher high,” Vom Dorp said.
Another reason for the lower prices is that there has been less demand in Europe and China.
Also, the increase of high efficiency vehicles has lowered the worldwide demand for oil.
Vom Dorp believes the national average for gas could reach below $2 a gallon. Currently, the national average is $2.05 a gallon.