US oil prices on Tuesday dropped below $50 a barrel for the first time since 2009 on a rocky day in global financial markets.
Near 1630 GMT, US benchmark West Texas Intermediate for delivery in February briefly dipped to $49.95 a barrel, before rallying somewhat to $50.20 a barrel. The breach of the $50 level came as the Dow stood down more than 200 points and European equity markets lost more than two percent on concerns about weakness in the eurozone. Oil has dropped about 50 per cent since June on worries about weak demand and a decision by the Organization of the Petroleum Exporting countries not to cut output in response to lower prices.
"People are thinking about promises from OPEC, mostly Saudi Arabia, that they'll continue to produce at very high levels," said Bart Melek, head of commodity strategy at TD Securities. "On the demand side of the equation, what we're getting is basically a lack of demand growth...As Europe is potentially in crisis." The euro fell to a nine-year low against the dollar on worries that a victory in Greece by the far-left Syriza party in the January 25 election will result in the country's departure from the eurozone.
A long rally in the greenback, which gained 11 percent last year against a basket of major rival currencies, has weighed on the dollar-priced oil market by making crude more expensive for buyers using weaker currencies. Meanwhile White House Press Secretary Josh Earnest said that the the falling oil price is good for the American economy and the middle class.
He further added that it is also a testament to the success that the US has had over the last several years, in part because of the policies put forward by this administration, to increase production of domestic oil and gas. "It also is a testament to some of the policies this administration put in place five years ago to raise fuel-efficiency standards," Earnest said.