Oil prices fell to a five-year low Monday, but investors are expecting a rebound soon.
The Brent crude international index dropped $2 per barrel to hit $66.77. That’s the lowest level since October 2009.
The price declines reflect predictions of global oversupply. The Organization of Petroleum Exporting Countries has much to do with that, as the 12-member oil cartel at the insistence of top-producing Saudi Arabia decided not to cut production to buoy prices late last month.
The move has translated into lower gasoline prices for consuming nations, such as the United States. A recent survey said U.S. pump prices have dropped to their lowest level in four years. That’s acted as a mini-stimulus for the global economy, with Citigroup saying it could provide a $1.1 trillion jolt to the global economy.
Hedge funds see a bottom coming, as they bumped up their speculative bets on West Texas Intermediate — a U.S. benchmark for crude — by 14 percent.
Most U.S. shale energy companies will survive on low oil prices. The industry has found ways to cut costs for hydraulic fracturing, or fracking, in those tight-rock regions, where producing is more expensive than coaxing hydrocarbons out of conventional wells common in countries like Saudi Arabia.
Still, some oil producers have taken a bit of a hit in recent weeks, and drilling wells in “frontier” regions with higher costs are likely unprofitable. That has pushed more drilling operations into well-developed fields in North Dakota and Texas.
