|Oil Prices: What’s Behind the Drop?
The oil industry, with its history of booms and busts, is in its deepest downturn since the 1990s, if not earlier.
The cause is the plunging price of a barrel of oil, which has fallen more than 70 percent since June 2014.
Prices recovered a few times last year, but a barrel of oil has already sunk this year to its lowest level since 2004. Executives think it will be years before oil returns to $90 or $100 a barrel, a price that was pretty much the norm over the last decade.
Why has the price of oil been dropping so fast? Why now?
This a complicated question, but it boils down to the simple economics of supply and demand.
United States domestic production has nearly doubled over the last several years, pushing out oil imports that need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets, and the producers are forced to drop prices. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping.
Who benefits from the price drop?
The latest drop in energy prices — regular gas nationally now averages around $1.76 a gallon, roughly down about 43 cents from the same time a year ago — is also disproportionately helping lower-income groups, because fuel costs eat up a larger share of their more limited earnings.
When are oil prices likely to recover?
Not anytime soon. Oil production is not declining fast enough in the United States and other countries, though that could begin to change this year. But there are signs that supply and demand — and price — could recover some balance by the end of 2016.
Demand for fuels is recovering in some countries, and that could help crude prices recover in the next year or two. There is now little or no spare production capacity to give the market a cushion in case of another crisis in a crucial oil-producing country.