A principal obstacle to economic growth came tumbling down yesterday as the price of oil plunged to $48.54 a barrel in New York trading on evidence that oil consumption in China is slowing dramatically.
Oil prices have dropped 16 percent from their peak close over $57 early last month, and gasoline prices at the pump have fallen in tandem. U.S. energy officials are so optimistic about the trend that they say the market may have peaked for the year, well before the Memorial Day start of the summer driving season.
The combination of softening demand in the U.S. and China and a six-year high of U.S. inventories of crude oil prompted the Energy Information Agency to forecast earlier this week that the average price of regular gas will be about a dime lower this summer than it thought a month ago — $2.17 instead of $2.28 a gallon.
That forecast, which assumes no major disruptions in oil supplies, was made even before oil plunged below $50 in the last two days in a downtrend that may have a ways further to go, according to oil traders.
The steep drop in oil prices precipitated a plunge in the stock of Exxon Mobil Corp. and other energy companies yesterday, leading the Dow Jones Industrial Average to a 111-point decline.
“People are asking themselves, are we going to see $40 a barrel before we see $60?” said Neil Massa, a trader at John Hancock Advisers Inc. “A lot of people made profits on these names last year and people are taking money off the table.”
Other markets celebrated the news as it takes a big weight off the American economy and points to stronger growth in the months ahead. Developments halfway around the world in China and developing Asia are a big part of the reason why.
After growing by 19 percent last year, consumption by China’s factories and consumers fell off to a 4.5 percent rate in the first quarter, apparently as a result of the first increase in state-controlled oil prices since August, the International Energy Agency reported.
The development suggests that the record high oil and gasoline prices driven by China’s oil binge in the last year may have been influenced greatly by the artificially low fuel prices maintained by the Chinese government.
Faced with growing losses at refineries that were forced to foot the cost of fuel subsidies, China in March raised the price of gas by 7 percent and of jet fuel by 12 percent. The result was a plunge in consumption, with the energy agency now predicting only 7.4 percent growth in Chinese oil consumption this year — less than half of last year’s growth rate.
Other Asian developing nations — including Thailand, Indonesia and Malaysia — also maintain ceilings on the price of oil and have seen similar slowdowns in consumption when they raised prices.
The energy agency said its forecast of lower Chinese consumption was tentative, however, as the country’s rapid economic growth will continue to feed a growing appetite for oil.
Together, China and developing Asia account for half of the growth in oil consumption worldwide. The possibility of a marked slowdown in their fuel use not only relieves the pressure on oil prices but potentially dispels a big cloud hanging over the American economy.
Economists and the Federal Reserve blamed a brief “soft patch” in the U.S. economy this spring on record high oil and gas prices. The high prices force consumers — especially those with low incomes — to cut back in spending in other areas, as well as search for ways to conserve fuel.
The consumer pullback caused a weak 0.4 percent gain in retail sales in March, when gas prices were climbing, but that appeared to reverse in April as prices ebbed at the pump.
Retail sales rebounded by a strong 1.4 percent last month, the Commerce Department reported yesterday, with sales particularly strong at auto dealers, home-improvement and department stores.
“This leaves no doubt that the March soft patch is over,” said Nariman Behravesh, chief economist at Global Insight.