Yahoo... NEW YORK (AP) — The price of oil has fallen by nearly half in just six months, a surprising and steep plunge that has consumers cheering, producers howling and economists wringing their hands over whether this is a good or bad thing.
The price of a barrel of oil is just under $56, down from a summer high of $107, and lower than at any time since the U.S. was still in recession in the spring of 2009.
So what's going on? A global imbalance of supply and demand that is rippling across the world economy, for better and worse.
SUPPLIES GO BOOM
Years of high oil prices, interrupted briefly by the recession, inspired drillers around the world to scour the earth's crust for more oil.
They found it.
Since 2008 oil companies in the U.S., for example, have increased production by 70 percent, or 3.5 million barrels of oil per day. To put that in perspective, that increase alone is more than the production of any OPEC member other than Saudi Arabia.
As U.S. production was ramping up, turmoil in the Middle East and North Africa reduced supplies from Libya, Iran and elsewhere. A balance was struck: Increasing supplies from outside of OPEC and from Iraq's recovering oil industry helped meet rising demand around the world as other OPEC supplies waivered.
But now those OPEC supplies look more certain despite continuing turmoil, and those non-OPEC supplies have swamped the market. OPEC estimated last week that the world would need 28.9 million barrels of its oil per day next year, the lowest in more than a decade. At the same time, OPEC countries plan to produce 30 million barrels of oil per day next year. That supply surplus is sending global prices lower.
DEMAND GOES BUST
Global demand is still expected to grow next year, but by far less than many thought earlier this year. The economies of China, Japan and Western Europe — the top oil consumers after the United States — all appear to be weakening. Oil demand falls when economic growth stalls.
The U.S. is still the world's largest consumer, but more fuel-efficient cars and changing demographics mean demand for oil and gasoline is not increasing. The Energy Department predicts a slight decrease in gasoline demand next year even though the price is expected to be sharply lower and the economy is expected to grow.
THE HAPPY CONSUMERS
For drivers, shippers, airlines and other consumers of fuel, there's nothing not to like about the drop in oil prices.
The national average gasoline price has fallen for 81 straight days to $2.55 a gallon, its lowest level since October of 2009, according to AAA. It's $1.15 a gallon cheaper than its high for the year, saving U.S. households $100 a month as they shop for holiday presents. "Any time gas prices go down that is a good thing," said Randy Daniels, 30, who was shopping recently at the Lenox Square Mall in Atlanta. "An extra 20 or 30 bucks in my pocket goes far."
Diesel and jet fuel prices have also plunged, helping boost the profits and share prices of airlines and shippers. Heating oil is the cheapest it has been in four years, reducing home heating prices just in time for winter for many in the chilly Northeast.
THE WORRIED ECONOMISTS
Falling fuel prices act like a tax cut and help boost consumer spending, which in turn accounts for 70 percent of the U.S. economy. But economists are growing concerned that there are other, more troublesome forces at play.
The depth of oil's plunge could be a signal that the global economy is struggling even more than economists think. A weak global economy could hurt the U.S. economy by reducing exports, employment and spending, which together could outweigh the economic benefits of cheaper fuel.
THE PRODUCERS' PAIN
For oil companies, oil-producing states, and oil-exporting countries, the oil price collapse is painful.
Oil companies generally keep producing oil from wells they've already drilled, but lower prices sharply reduce revenue and force them to cut back spending on new exploration projects. BP announced last week it would try to trim $1 billion in spending next year in a move that analysts say could result in thousands of job cuts.
States that rely on taxes from energy production such as Alaska, North Dakota, Oklahoma and Texas will see lower revenues and some have already had to trim budgets.
Major oil exporters such as Iran, Iraq, Russia and Venezuela rely heavily on revenues from state-owned oil companies to run their governments and are struggling under major budget shortfalls. For example, Bank of America estimates that every $1 drop in the global price of oil costs Venezuela $770 million in annual revenue. Current prices are now $47 below last year's average, putting the country on pace for a $36 billion reduction in revenue.
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AP Business Writer Mae Anderson contributed to this story from Atlanta. Jonathan Fahey can be reached at twitter.com/JonathanFahey . 416 Comments
Poster Comment:
LordOfAllHeSurveys Geo-politically, the US government could be "encouraging" Saudi Arabia to keep their production high. This slams the economies of Russia, Iran, and Venezuela, while lowering domestic prices and helping the US Economy. Further, the Saudis stand to lose market share to the Tar Sands and Bakken oil fields coming online in North America. By producing oil at a much cheaper price than anyone else can do it, they are also curtailing the development of the oil fields that will eventually make oil shipments from the Middle-East to North America obsolete. The Saudis may be tempted to hang on to market share rather than see their biggest export markets collapse. In any event, I expect to see a barrel of oil selling for under $40 in the very near future. I would also expect Putin to be looking over his shoulder at his billionaire oil friends, wondering which one(s) would like to see him deposed. 48-1
Dianne And Gene unfortunately the Tar Sands are no longer profitable at these prices...... some think the Saudis are trying to ruin the expanding US production.8-5
[LordOfAllHeSurveys] Hi Dianne And Gene, Your concern is spelled out in my comment. It may be in the interest of the Saudis to collapse the price of oil so that North American domestic production becomes less attractive. Oil companies and oil exploration workers may take a hit for sure (my brother is one who may find himself unemployed.) Low oil prices are generally good for the US economy, not necessarily the economies of big oil companies. I expect that Exxon-Mobil is drawing up a bill for the next congress called the "Save our domestic oil supply for Jesus and Guns." (or something like that.) so that they can get some payback on the money invested in new exploration. The American consumer will bail them out after the bill passes by paying more at the pump. Enjoy the low prices before the bill passes.3-4
James Hartle ...Russia is a major gas and rare earth exporter, hurt notas much as we expect. Iran is also a major gas exporter and can export more oil if she wanted to. At 65 follars per unit, the tar sands and fracted producers are cooked.
[ghostbuster26] Some here are simple minded, sure all the above is true, however, the price drop makes shale drilling in U.S. unprofitable, which seems to hurt us overall, except the Saudi giants are helping the American oil giants drive a lot of small independents broke and then take over their mineral rights buy them out and consolidate the industry as well as merge a few of the oil companies because the present market will justify the mergers, and there is going to be big money in that....5
peter i dont think keeping oil so low, by lobbing the saudi's, is helping the 20,000 + new north dakota shale fracking rigs that just borrowed $100's billions to extract Oil for $80 a barrel... this is a colossal Loss in the making!! Watch them fall ....like dominos.. and saudi's will chuckle. 1-3
underthebus The drop in oil prices has nothing to do with US production. Saudi Arabia is selling it at $40 a barrel and has flooded the market with cheap oil and they plan to do so well into next year. They are doing this at the urging of their muslim brother in the White House, knowing that if oil falls below $60 a barrel it is no longer profitable for US producers. So Obama has scored points with his tree hugging liberal base by shutting down oil producers and gets to take credit for cheap gas. We will all be paying for this cheap gas. 7-8
Ray Lower oil prices are both good and bad depending on how much they fluctuate. At $58 per barrel US oil companies can still make money but if it gets too much lower they will slow drilling and the economy will begin to slow with it. The Petroleum Industry is a lot more than just the price of oil and subsequent price of gasoline and diesel fuel. It impacts everything including vehicle sales and production, grocery production and sales, simple things like tools, hard hats, lunch boxes and you name it. If you recall back in the early 80s when the oil prices collapsed we had a deep recession for several years until prices came back up Starting in 2015 we would be better off if crude oil prices stabilized somewhere around $70 per barrel, keeping fuel affordable and our oil and gas production on the increase. This pumps money into the economy while still keeping prices affordable. . 15-5
joe america produces about 10 million barrels a day of oil, imports around 8 million barrels a day and exports about 4.6 million barrels of products a day, not much oil is exported as there is legislation that makes it unprofitable. oil has been and still is the united states biggest import. the oil market suffers right now from a demand problem, this will be a positive for the united states as a whole, but not the panacea as it would have been years ago. raw energy as a component of gdp. has dropped from 22% 25 years ago to less than 10% now. it will help the economy but not as much as cutting taxes with a bigger cut in government spending. it will be hard for the united states to see any benefits without corresponding cuts in taxes and government spending. the government is the big bear in the room eating all the resources 3-2
GeneChandler When Oil was just over $100/bbl, the price of gasoline was about $4/gallon. It takes some time for the drop in oil price to filter through to the gasoline price, but at today's oil price of $58/bble, the corresponding gasoline price would be about $2.32/gallon, which is pretty close, especially considering that the taxes per gallon are flat and don't go down when oil prices drop. As a matter of fact, many times in the past politicians used drop in oil prices as an excuse to raise gasoline taxes because we were used to paying the higher price, but they never take the tax off when oil prices and gasoline prices go up. 12-2