May 2010 Monthly Average Crude Oil Price: Retrenchment

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The monthly average price of West Texas Intermediate crude oil fell in May, to $73.83 per barrel – a drop of $10.65 (-12.6 percent). That price decrease coincided with a stronger dollar, and occurred despite the lagged impacts of a jump in consumption of roughly 0.2 million barrels per day (BPD) in March – the latest data available – and despite rising crude stocks.

That the drop in oil price was not a result of just dollar strength – but rather a combination of concerns over sovereign debt, prospects for flat or falling consumption in the developed world, and rising OPEC production – is evidenced by the fact that the euro price also dropped despite that currency’s depreciation against the greenback.

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In reaction to the ongoing Deepwater Horizon disaster, the Obama administration has blocked some or all new offshore drilling in the Gulf of Mexico. The Gulf Coast office of the Minerals Management Service issued an email, obtained by The Associated Press, saying that "until further notice" no new drilling is being allowed in the Gulf, no matter the water depth.

Despite the email, a spokeswoman for Interior Secretary Ken Salazar denied that the administration was placing a hold on shallow-water drilling. "There is a six-month moratorium on deepwater drilling," Kendra Barkoff said in a June 3 e-mail. "Shallow-water drilling may continue as long as oil and gas operations satisfy the environmental and safety requirements Secretary Salazar outlined in his report to the president and have exploration plans that meet those requirements. There is no moratorium on shallow water drilling."

Even if shallow-water drilling is not part of the moratorium, additional restrictions are forthcoming. Bob Abbey, the acting director of the Minerals Management Service, said operators will be required to submit additional information about potential risks and safety considerations before being allowed to drill. The administration will establish separate requirements for deep water and shallow water exploration, Abbey said.

In a recent letter, Gulf Coast senators urged President Obama to allow shallow-water drilling to continue; they argued that it is safer than deepwater exploration, and shutting down the roughly 60 shallow-water rigs in the Gulf could cost some $135 million in revenues and affect at least 5,000 jobs.