Monthly Archives: November 2014

A simple guide to the sudden collapse in oil prices

By Chris Mooney

An oil well near Tioga, North Dakota. (AFP PHOTO/ Karen BLEIER/Getty Images)

The news in the markets is dramatic: Prices for West Texas Intermediate crude oil — often used as a benchmark of U.S. prices — dropped below $70 per barrel for the first time since 2010. This continues a dramatic price slump for oil, which cost over $100 per barrel as recently as June.

The shift has markedly reduced average U.S. gasoline prices (which are now well below $3 per gallon) and may bolster the U.S. economy heading into the Christmas spending season — by putting considerably more money in consumers’ wallets.

But what’s driving this slump — which is quickly becoming the single most important economic story of 2014 (and maybe 2015)? There’s one short-term reason and three longer-term reasons.

The most immediate reason is that the Organization of the Petroleum Exporting Countries — a group of 12 nations including Saudi Arabia, Iran and Venezuela that holds enormous power over global energy markets, producing 40 percent of global oil supply — decided on Thursday not to cut production at their meeting in Vienna.



The meeting was the most important in years, because it came amid a pre-existing slump in prices. Everybody wanted to know if OPEC would take any action to halt the decline. It didn’t — presumably because its members decided it was wiser to weather the current storm — and crude oil prices immediately tanked.

The long term reasons include booming U.S. and world oil production, little demand in Europe and Japan, and improving automobile fuel efficiency standards.

1) Booming U.S. and world oil production. Even as OPEC kept production steady, it has been growing elsewhere. The United States, most of all, has …read more