After intense speculation that high oil prices have finally begun to cut into consumer demands, the price of oil lowered to 124 dollars per barrel. The chance of further corrections in oil pricing is becoming more possible. The drop in oil prices is now 11 dollars less than the peak of 135.09 on May 22. The price of oil in Futures exchange also dropped.
The Organization for Economic Cooperation and Development has predicted weak growth for most of its members which include countries like US, Japan and many European countries. The organization has also slashed its economic growth outlook for the course of next year.
The weekly petroleum figures by the Energy Information Administration of The Energy Department are expected to indicate an increase. Various facts show that oil prices that are almost twice of what they were last year, have finally begun to cut into demand.
The most recent MasterCard SpendingPulse survey shows that the demand for fuel in world's largest oil consumer, the U.S., dropped by 4.7 percent in comparison to the same week in the previous year. What is more surprising is that the Memorial Day holiday weekend, which is a time usually when consumer demand for fuel is high, fell in the week. In total the demand fell by 6 percent approximately in the course of four weeks.
The findings by MasterCard rectify the data collected by the Energy Department and Federal Highway Administration that suggests that the American hunger for fuel is impeded by the high oil prices. Changes in demands for oil in the U.S affect the global fuel prices.
The resolution by some Asian countries to reduce subsidy on oil product had a bearish effect on the market which again helped reduce oil prices. Countries like India and Malaysia are raising their prices for oil products varying from petroleum to cooking gas. India has announced its plan to increase the price of petrol by 11 percent in its capital New Delhi. Malaysia also declared a hike in gasoline prices by as much as 40 percent and also a 26 percent increase in electricity charges for industrial and commercial users. Taiwan and Indonesia have also taken similar steps.
Meanwhile as a result of the price increase in Crude oil several industries continue to suffer. United Airlines in order to cope with the fluctuating oil rates has let go of 1,100 more jobs. The airline is also getting rid of 100 airplanes that take too much fuel. This reduces the domestic capacity of United Airlines considerably. Similarly General Motors has closed four truck and SUV plants. Countries like Mexico and Canada are seeing a shift towards smaller vehicles.
But on a lighter note the value of the dollar in strengthening. The weakening of the dollars added to the increase of oil price and the increase in its value is seen as another reason for the decrease in oil price. Also, energy research firm Platts believes that the U.S. oil and fuel supplies rose last week. These forecasts also caused the oil rates to fall.
