The price of oil dropped to less than $89 per barrel on Wednesday hitting a low of seven months as sovereign debts woes in Europe pushed markets lower. The price of oil in New York dropped to $87.90 as of 12:30 pm, down close to $2.80 per barrel from Tuesday’s close.
The main reason for the drop was Spain. The European Central Bank said it did not approve a bailout plan for Bankia, Spain’s fourth largest bank, and such recapitalization could not be supported by the euro region. However, the bigger worry is Spain’s economic troubles along with those of Italy, Portugal and Greece combining together to spark a continent wide recession that could become worldwide. If that were to happen then demand for oil worldwide would plummet.
A fear that the financial troubles in the region could become contagious for all of Europe has helped to send the euro on a downward spiral close to its low of two years, which helped crude prices drop as well.
Oil was at a high of $110 just as recently as March yet has now fallen over $20 per barrel or close to 20%. It started to fall when relations with Iran started to improve and then over the ever-deteriorating economic crisis that is gripping Europe. Because of that, gasoline prices, which peaked in April at nearly $4.00 per gallon, have retreated to a national average of $3.63 per gallon. The lowering of prices has given some relief to many motorists in the U.S., although a savings in gas may not be too comforting if it becomes the root cause of another recession.