Oil prices drop to four year low, Brent below $80 per barrel

Oil prices have dropped by around 4 percent to four-year lows on Thursday, with benchmark Brent took down to below $80 per barrel.

Benchmark U.S. crude dropped by $2.97, or 4 percent, to close at $74.21 on Thursday afternoon. This is a 31 percent decline since late June to its lowest level since September of 2010. Brent crude dropped by $2.46 to close at $77.92.

OPEC members will have to reduce production to reverse a slump that is entering its fifth month but recent comments by Saudi Arabia indicate that may not happen – which could push prices even lower.

For oil companies this is not welcome news as their profits will decline, however, for the overall US economy it is not a bad thing if oil prices go down, as it gives a lift to airlines, shippers, and consumers as they pay less for fuel.

Global crude supplies has been increasing, with more production in the U.S., Libya, Iraq and elsewhere. But demand for crude has weakened as Asian and European economic growth slows down.

The Organization of Petroleum Exporting Countries (OPEC) is going to have a meeting later this month. Its 12 members will likely talk about reducing production in an attempt to lift prices back up. These countries need oil prices to be high to fund government projects.

However, oil ministers from Saudi Arabia and Kuwait have made comments in the past few days that suggest OPEC is not going to agree to a cut. If a cut does not happen, and OPEC keeps supplies keep rising, then the price of oil could fall even more.

Saudi Oil Minister Ali al-Naimi said on Wednesday:

“We do not set the oil price. The market sets the prices,”

According to the Energy Department, low fuel prices in the US are expected to last into 2015. The department projects that the average for 2015 will be $2.94 a gallon, which would be 13 percent lower than the expected average this year.