3 Reasons Why Oil Prices Fell and Why You Should Be Happy

The global price of oil has fallen by nearly half in just six months.

The drop is surprising and the deep plunge had consumers cheering, while producers are howling, and ordinary citizens never knew whether this price drop is a good or bad thing.

With this global state, one would wonder why PHL jeepney drivers stay hard on lowering the minimum fares. Well, lets just wait and see what stakeholders and LTFRB7 would come on this line after their public hearing.

The price of a barrel of oil is just under $56, down from its previous high of $107.

So what is really going on?

1. Supplies went boom.

Jonathan Fahey, a credible energy writer said that years of high oil prices, interrupted briefly by the recession, inspired drillers around the world to scour the earth’s crust for more oil.

and yes they found it.

Starting 2008, oil companies in the U.S., for example, have increased production by 70 percent, or 3.5 million barrels of oil per day. This means that the increase alone is more than the production of any OPEC member other than Saudi Arabia.

He added that while 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, Fahey said.

He further posited that now those OPEC supplies look more certain despite continuing turmoil, and those non-OPEC supplies have swamped the market.

FYI: 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.

2. Demand is weak.

Fahey goes on to say that global demand is still expected to grow next year, but by far less than many thought earlier this year.

He shared that 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.

Fuel Efficient Cars

The U.S. is still the world’s largest consumer, but more fuel-efficient cars and changing demographics mean that 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.

3. Profits goes up for shippers, airlines.

The US national average gasoline price has fallen for 81 straight days to $2.55 a gallon. This is the 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.

Fahey said that while diesel and jet fuel prices have also dropped, it helps 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, he said.