Crude oil prices, after flirting with US$40 a barrel in February, have plunged to about US$29 as the US military gains control of Iraq's oil fields and Nigeria and Venezuela resume output disrupted by civil unrest.
Lehman Brothers Holdings Inc anticipates prices falling to US$23 a barrel next year, and Bank of America Corp forecasts US$21.
PHOTO: REUTERS
The declines already are so large that OPEC, which controls a third of the world's oil, may meet at the end of this month to consider reducing supply.
A month ago, the prospect of oil prices that some traders said might even soar past US$50 a barrel threatened world economies already burdened with overcapacity and rising unemployment.
Falling prices now remove one hindrance to growth and may aid companies whose profits are tied to oil prices, including Dupont Co, Deutsche Lufthansa AG, AMR Corp and Nippon Yusen KK.
"Lower oil prices would be a real stimulus to the economy," said Daniel Yergin, chairman of Cambridge Research Associates and author of The Prize, a book about the oil industry that won the Pulitzer Prize. "It would be like a large tax cut."
DuPont said that a 10 percent change in crude prices works out to US$100 million in annual costs.
Each US$0.01 drop in the price of a gallon of fuel saves AMR's American Airlines unit, the world's biggest airline, US$30 million a year.
``In today's environment, every dollar helps,'' said AMR spokesman John Hotard.
Jet-fuel prices dropped US$0.45, or 38 percent, to US$0.75 a gallon this week from US$1.20 at the end of February, according to the Air Transport Association, the trade group for major US carriers.
Lufthansa Cargo, the world's largest cargo airline and a unit of Deutsche Lufthansa, Europe's No. 3 carrier, cut its energy surcharge on shipments by 25 percent Monday. British Airways Plc, Europe's biggest carrier, said it would slash its fee by the same amount if fuel prices stay below a threshold for another week.
Ocean-shipping firms are also benefiting from lower oil prices.
"Fuel costs decline and it works as a plus to the company's earnings," said Shuichiro Shimomura a spokesman at Nippon Yusen, Japan's biggest shipping line.
Lower oil prices are a boon to Continental AG, the world's fourth-biggest tire company, which uses petroleum in the production of tires, Chief Executive Officer Manfred Wennemer said at a press conference in Hanover, Germany.
The lower prices may not help some companies for several months as they use up supplies purchased when oil was more expensive.
Many of the materials that Netherlands-based paint maker Akzo Nobel NV buys are derived from oil. That means the effect of falling crude prices is limited, according to investor-relations manager Dick Luijckx.
"Material costs come down slower than they rise so we expect to see it in our pricing in about a month," said Edward Caudill, chief executive of Fleetwood Enterprises Inc, a California company that builds 150 motor homes a week.
The benefit of cheaper oil for the US economy may be modest, said Cynthia Latta, chief economist at Global Insight Inc, a Lexington, Massachusetts, forecasting firm. That is because oil prices didn't stay higher than US$30 a barrel long enough to do much damage. Crude oil surpassed US$30 in mid-December and rose to a high of US$39.99 in New York in late February before falling last month.
Global Insight, which expects oil prices to fall to between US$25 and US$26 a barrel for the rest of this year, predicts the US economy will grow 2.6 percent this year and 4.2 percent next year.
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