The American consumer got a surprise gift this holiday season: the dramatic collapse in the price of oil. The trend has sent gas prices down to a national average of under $2.20 per gallon, with rates under $2 per gallon in some states. 
 
 The benefits of cheap gas are widespread, though the price declines are more of a mixed bag for economies in U.S. states with large energy sectors. 
 
 Oil prices have continued to fall into the new year, as the price of a barrel of U.S. light crude oil fell below $50 on Monday for the first time since early 2009. So, just how low will oil go? 
 
 Edward Morse, global head of commodities research at Citigroup, argues in a research note to clients published Sunday that we’ve probably already reached a market bottom and that oil prices will begin to rise in the latter half of the year as producers finally begin to curtail supply. He puts into context just how profound the collapse has been, writing: 
 
 Average Brent prices are now trading some $55 a barrel lower than they were from Q1’11 through Q2’14. That’s a $4.4 billion daily drop in the costs of oil, discounting for the more than 10% of global oil consumption not fully priced into market levels. For the world as a whole, annualized, it amounts to about a $1.6-trillion quantitative easing program for the world economy, but an equal loss of revenue for oil producers, sovereigns and companies alike. 
 
 But Morse argues that this trend will start to slow during the first half of 2015, and that prices will rise sometime in the second half of the year. As you can see from the chart below, Morse sees the price of U.S. crude, also known as WTI, bottoming out in the second quarter at around $47 per barrel, and increasing from there. 
 
 So, what might cause an oil-price bounce back? There are certainly plenty of forces pushing oil prices the other way, namely a significant slowdown in the growth of China’s economy, coupled with a steadily increasing energy supply brought on by innovative methods for extracting oil from shale deposits. Indeed, several new pipelines like Enbridge’s (ENB) Flanagan South line, which is capable of pumping 600,000 barrels per day from Illinois to Oklahoma, began pumping oil or added capacity late last year. This has allowed even more of Canada’s vast oil deposits to hit the global market in a cost-effective way. 
 
 But suppliers will eventually have to respond to lower prices. Beginning in late 2015 and into 2016, Morse argues that drillers will start abandoning their less productive operations, which will result in slower growth in global oil supply. 
 
 Of course, geopolitical events can throw off these projections. Few sectors are as intertwined with international politics as the oil market, and already we’re seeing price declines have significant effects on events in Russia and Eastern Europe as well as places like Venezuela and Iran. In particular, Morse worries that cheap oil could lead to severe instability in countries like Venezuela and Libya. Upheaval in oil producing regions could limit production and therefore send oil prices higher. 
 
 But Todd Mariano of Renaissance Macro Research thinks that if history is any guide, lower oil prices will yield positive, long-lasting effects. He says that the price decline we’re experiencing today “bears a striking resemblance to 1986,” when global oil markets also crashed and had wide-reaching effects on geopolitics and the global economy. The collapse in oil prices in the late 1980s played a role in bringing the Iraq-Iran war to a close, as both countries relied on oil revenues to finance that conflict. A similar dynamic could unfold in Russia, as reduced government revenues might make Putin’s adventurism abroad less feasible. 
 
 The most striking quality of the mid-eighties decline in oil prices, however, was how persistent it was. As Mariano writes, “Leaving aside the spike related to Iraq’s invasion of Kuwait in 1990, [U.S. crude oil prices] in nominal terms had still not recovered its late 1985 levels fifteen years later, in 1999.” 
 
 In other words, if developments in today’s oil market are, in fact, a replay of the mid-1980s, relatively cheap oil might be here to stay. ||||| The sell-off resumed for oil prices on both sides of the Atlantic on Monday as concerns about a supply surplus and weak global demand accelerated, weighing on crude markets. 
 
 ICE February Brent, which recorded its second-largest annual drop since records began in 2014, dropped to fresh five-and-a-half-year lows. The international oil market hit a low of $52.66 a barrel in afternoon trading before recovering to $53.11 a barrel, down $3.31. 
 
 Nymex February West Texas, the US benchmark, dropped $2.65 to $50.04 a barrel, having earlier traded as low as $49.95 a barrel — the first time since April 2009. 
 
 Opec’s decision at the cartel’s November meeting to hold production at 30m barrels a day deepened an oil price rout that had been gathering pace since mid-June. 
 
 The budgets of the world’s largest oil producers, from Venezuela to Russia, have been put at risk while the share prices of international energy companies have suffered huge losses. 
 
 Opec has been battling a demand squeeze amid “anaemic global growth”, a drive by governments to meet emissions targets and an upsurge in production from rivals, said David Hufton, chief executive at broker PVM. 
 
 A strong US dollar had also put producer countries under pressure, Mr Hufton said. Commodities such as oil that are priced in dollars are more expensive for buyers who use other currencies. 
 
 “[It] is very plain for all to see that oil supply growth exceeds oil demand growth and from a producer point of view this imbalance has to be rectified,” he added. 
 
 Even as recent conflict in Libya has reduced output, Russian production has reached record levels and Iraqi exports have hit highs last seen in 1980, only adding to concerns about an oversupply. 
 
 “New supply has entered the market, offsetting Libya outages,” said Adam Longson, oil analyst at Morgan Stanley, adding that there was little to support the oil price. 
 
 He said a potential nuclear agreement with Iran could spur increased production from Opec nations. 
 
 Meanwhile, Saudi Arabia — the cartel’s largest producer and de facto leader — shows “few signs of capitulation” and is likely to stand by its stance of maintaining output at existing levels, Mr Longson added. 
 
 State-owned oil company Saudi Aramco said on Monday that it would cut February export prices for all oil grades to northwest Europe. At the same time, it increased prices for Asian customers — its major selling market — after steep cuts in previous months. 
 
 Price cuts by Saudi Arabia have been interpreted by some market participants as a sign that the kingdom will no longer take action to boost prices in a fight over market share. Others have said the price differentials are more a reflection of general market weakness. 
 
 Both major benchmarks have plunged more than 50 per cent since the middle of 2014 on the bearish sentiment. 
 
 The “contango” structure in Brent and Dubai crudes — market jargon for when prices for future delivery exceed spot prices — are steep and are only expected to widen. 
 
 This means that after years of low volatility and poor moneymaking opportunities, traders and banks will be eyeing storage plays, said analysts. 
 
 Vitol, Trafigura, Mercuria and Glencore, alongside some of the world’s biggest banks, sought out an almost risk-free profit from the “supercontango” of 2008-2009 when they bought crude at cheaper rates, stored it in onshore or offshore facilities and sold it on at a later date at higher prices. 
 
 The price of Brent crude for delivery in six months stands at more than $5 a barrel higher than current levels. ||||| NEW YORK (MarketWatch) — Here’s how bearish some traders are getting on oil these days. 
 
 Even before Nymex WTI crude futures on Monday dipped below $50 a barrel in the latest stage of the crude rout, Stephen Schork, editor of the widely followed Schork Report, took note of trading in well out-of-the-money put options (puts give you the right, but not the obligation, to sell the underlying futures contract at a specific strike price). 
 
 See: U.S. stocks nosedive as oil prices tumble. 
 
 Unsurprisingly, open interest (the number of open contracts) in $50 strike-price puts on the February WTI futures contract US:CLG5 had risen to 22,537 as of Friday’s close from 193 contracts at the beginning of December. Open interest on $45 puts rose from 8 to 36,113, while open interest in $40 puts rose from 1 to 9,864. 
 
 Here’s where it gets interesting: Open interest on $30 puts on the March futures contract US:CLH5 rose to 2,127 from 34, while $30 puts on the June contract US:CLM5 rose from 35 to 51,252. In addition, there has even been some light trading in June $20 puts, with open interest at 176 as of Friday’s close. 
 
 “In other words, bets on sub-$30 crude oil in June are now 1.7 times greater than physical inventory at the Nymex terminal complex in Cushing,” Schork said in a note, referring to the Oklahoma delivery point for WTI oil. 
 
 Of course, a trader can make money on a put even if the price of the underlying contract doesn’t fall below the strike price. The value of the option can rise as the price of the commodity declines. But the pickup in interest in far out-of-the money calls is noteworthy for what it says about market psychology. 
 
 mw_crude_01052014 
 
 Is it a sign that market sentiment has moved to an extreme, setting the stage for a rebound? 
 
 The economics of the oil market are effectively “broken” and that’s left “psychology” to drive price action, Schork said. Even though the market is oversold according to technical measures, that’s been the case for the past three months, he said. 
 
 “We could get a rebound to $70, but we could see $30 before we see $70, so why do you risk $20 to win $20,” he said. “So no picking the bottom here.” 
 
 More from MarketWatch ||||| Oil’s selloff accelerated on Monday, with U.S. prices falling briefly below $50 a barrel for the first time since April 2009, on signs that supply will outstrip demand in coming months. 
 
 Ample oil production, particularly in the U.S., and tepid demand growth have sent crude oil prices plunging in recent months. Consumers are reaping the benefits, while oil-exporting nations are struggling to balance their fiscal budgets and oil companies are seeing their stock prices slump. 
 
 ... ||||| Benchmark U.S. oil prices dropped below $50 a barrel for the first time since April 2009 as surging supply signaled that the global glut that drove crude into a bear market will persist. 
 
 West Texas Intermediate slid 5 percent in New York while Brent fell below $55 in London for the first time since May 2009. Russia’s output rose to a post-Soviet high while Iraq, the second-largest producer in OPEC, plans to boost crude exports to a record this month. The price drop accelerated as the dollar climbed against the euro amid investor concern Greece might leave the currency union 
 
 “The market is continuing to price in weak fundamentals in the first half of this year,” Mike Wittner, head of oil research at Societe Generale SA in New York, said by phone. “There’s also been a return to risk aversion because of Greece, something we haven’t seen in a while.” 
 
 Brent slumped 48 percent last year, the most since the 2008 financial crisis, as the Organization of Petroleum Exporting Countries resisted calls to cut output amid a battle with U.S. shale producers for market share. The 12-member group pumped above its target for a seventh straight month in December, according to a Bloomberg survey. 
 
 WTI Futures 
 
 West Texas Intermediate for February delivery dropped $2.65 to $50.04 a barrel on the New York Mercantile Exchange. It was the lowest settlement since April 28, 2009. Prices slipped as much as 5.5 percent to $49.77 during trading. The volume of all futures traded was 11 percent higher than the 100-day average at 2:54 p.m. 
 
 Photographer: Mario Proenca/Bloomberg Oil storage tanks, left, stand beyond pipework at an oil refining plant in Sines, Portugal. Close Oil storage tanks, left, stand beyond pipework at an oil refining plant in Sines, Portugal. Close Open Photographer: Mario Proenca/Bloomberg Oil storage tanks, left, stand beyond pipework at an oil refining plant in Sines, Portugal. 
 
 Brent for February settlement declined $3.31, or 5.9 percent, to end the session at $53.11 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since May 1, 2009. Volume for all futures traded was 40 percent above the 100-day average. The European benchmark closed at a $3.07 premium to WTI. 
 
 “Everyone is looking for the bottom,” Sarah Emerson, managing principal of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts, said by phone. “We’ve already dropped below what would be justified by fundamentals. Brent should find support around the $58 to $60 area given supply and demand.” 
 
 Iraqi Exports 
 
 Iraq plans to expand crude exports to 3.3 million barrels a day this month, Asim Jihad, a spokesman at the Oil Ministry in Baghdad, said by phone yesterday. The country exported 2.94 million a day in December, the most since the 1980s, he said. 
 
 Russian oil production rose 0.3 percent in December to a post-Soviet record of 10.667 million barrels a day, according to preliminary data published Jan. 2 by CDU-TEK, part of the Energy Ministry. 
 
 “This bearish market is being fed by a combination of surging supply and shaky demand,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “We now have Russian production at a post-Soviet high and the Iraqis planning to add even more supply to the market. This just adds to negative market sentiment.” 
 
 Saudi Discount 
 
 Saudi Arabia narrowed discounts in its official February crude selling prices to buyers in Asia to $1.40 a barrel below the average of Middle East benchmark Oman and Dubai grades. 
 
 The world’s biggest oil exporter offered its Arab Light grade at the greatest discount in at least 14 years for January. That move was followed by Iraq, Kuwait and Iran, prompting speculation that Middle East producers were protecting market share. 
 
 The oil market is set for “more problems” this year as increasing supplies add to the global glut, according to Morgan Stanley. Output may rise in West Africa and the Americas in addition to more shipments from Russia and Iraq, offsetting concerns of reduced Libyan production, analysts including New York-based Adam Longson said in an e-mailed report today. Iran may boost exports by about 500,000 barrels a day if western sanctions against it are lifted, the analysts said. 
 
 Revised Projections 
 
 Brent will trade at $80 a barrel this year, down from an earlier estimate of $104, amid gains in global spare capacity and rising inventories, Sanford C. Bernstein said in an e-mailed report today. 
 
 U.S. crude output rose to 9.14 million barrels a day in the week ended Dec. 12, the most in Energy Information Administration weekly data that started in January 1983. Production will climb to an average 9.32 million this year, the EIA said Dec. 9 in its monthly Short-Term Energy Outlook. 
 
 “We’re still focused on U.S. production,” Kyle Cooper, director of commodities research at IAF Advisors in Houston, said by phone. “Production is going to rise during the next six months as projects that are already underway reach completion.” 
 
 Dollar Strength 
 
 The euro dropped as far as $1.1864, the lowest in almost nine years. A stronger U.S. currency usually reduces the appeal of commodities as a store of value. 
 
 “The euro is getting trounced on the Greek news today,” Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania, said by phone. “There’s a very strong correlation between dollar strength and oil prices. The dollar is very strong right now.” 
 
 The EIA is projected to report Jan. 7 that U.S. supplies of crude, gasoline and distillate fuel, a category that diesel and heating oil, rose last week, according to a Bloomberg survey. 
 
 Fuel Prices 
 
 Gasoline futures declined 5.2 cents, or 3.6 percent, to $1.3814 a gallon, the lowest settlement since April 1, 2009. Diesel decreased 4.65 cents, or 2.6 percent, to close at $1.7492, the least since Sept. 29. 
 
 Regular gasoline at U.S. pumps fell to the lowest level since May 2009. The average retail price slipped 1 cent to $2.199 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group. Pump prices were around $2.05 a gallon when oil was last below $50 a barrel. 
 
 “This bearish syndrome will continue until the drop in prices either stimulates economic growth or there is a supply response,” Kilduff said. 
 
 To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net 
 
 To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Stephen Cunningham, Charlotte Porter
– Wonder whether gas prices will hold at their incredible $2.20 national average? Based on today's news, filling up the tank won't get harder over the next few weeks, the Wall Street Journal reports. US oil prices dipped below $50 a barrel for the first time in nearly six years, breaking a psychological barrier and sending a message: the high-supply, low-demand, low-price perfect storm will only continue. Here's more: Why: Plentiful worldwide oil production—including historic US highs, reports Bloomberg—ran into a weak global economy last year, lowering oil prices. Saudi Arabia, which produces oil more cheaply than many rivals, opted to maintain its market share by keeping the oil pumping. Prices dropped by 50%. What it may mean: "[It] is very plain for all to see that oil supply growth exceeds oil demand growth and from a producer point of view this imbalance has to be rectified," says the CEO of broker PVM, the Financial Times reports. Upshot 1: The number of US rigs drilling for oil has dropped for the past month. Many say US shale-oil drilling stopped being profitable at roughly $60 per barrel: "We’re certainly in new territory here," says a portfolio manager. Upshot 2: Analysts say we're near bottom but could hit $40 a barrel before a rebound in a couple of months. Some traders are even betting on $20 oil, Marketwatch reports. Upshot 3: Cheap oil could cause geopolitical disruption in nations like Venezuela and Libya, and limit Vladmir Putin's global ambitions, an analyst tells Fortune.