The dramatic reversal should bring relief to drivers as well as nervous central bankers very soon.
American oil prices plunged by 5.6 per cent to $US84.22 ($132) a barrel on Wednesday, marking the biggest one-day decline in a year.
Crude dropped even further on Thursday, sinking as low as $US82.24 ($129) a barrel, a five-week low.
This is quite the U-turn, even for the notoriously boom-to-bust oil market.
As recently as last week, US crude briefly touched $US95 ($149) a barrel and Wall Street banks were predicting $US100 ($156) or higher amid Saudi Arabia and Russia’s aggressive supply cuts.
Now, petrol prices in the US are already starting to retreat and experts predict sharper drops to come.
American petrol prices will tumble to nearly 92 US cents ($1.44) over the next few weeks, Andy Lipow, president of consulting firm Lipow Oil Associates,
It would also come as a relief to officials inside the White House and the US Federal Reserve who nervously watched the recent jump in oil prices and considered the damage it could do to consumer confidence and inflation.
Indeed, the recent jump in petrol prices almost single-handedly caused US inflation to heat up last month.
So why did oil prices go from spiking to plunging?
Some argue that oil bulls, including hedge funds, had become excessively bullish.
Egged on by Saudi Arabia’s supply cuts, they piled in to make bets that prices would go higher and higher — even though fundamentals didn’t justify it.
“A lot of speculative pressure is being let out of the tyres,” Matt Smith, lead oil analyst for the Americas at Kpler, said.
“It was stretched taut like a rubber band, hence a couple of bearish triggers caused price to snap back in short, sharp fashion,” Smith said.
The latest trigger was a US government report released Wednesday that showed petrol inventories unexpectedly soared last week.
That in turn raised concerns about weakening demand for petrol.
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Of course, it’s worth noting that the situation in the oil market can change in the blink of an eye, as the past week demonstrates.
There’s always a risk that more aggressive steps by OPEC+ to cut supply or disruptions caused by Russia’s war in Ukraine could cause oil and gasoline prices to move higher again.
Tom Kloza, global head of energy analysis at the Oil Price Information Service, said he is expecting prices at the pump to rebound early next year as demand from drivers returns and refineries struggle to keep up.
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