Oil Is Down By 50% In Six Months
With the price of oil falling by 50% in six months, there is a lot of confusion in the air. Today the price of oil is under $56 and many wonder if it will fall below $40. Newscasters have suggested that perhaps oil producing nations get together and control the price of oil.
The summer high for oil was $107, but it is now lower than it was at any time since the spring of 2009.
Because of high oil prices, drillers have produced more oil. The US is producing 60% more oil than 5 years ago. Since 2008 oil companies have increased production by 70 percent or 3.5 million barrels of oil per day.
US production increased and turmoil in the Middle East and North Africa created a balance in supply. But now turmoil in the Middle East has calmed.
Oil has flooded the market, with OPEC last week estimating that the world would need 28.9 million barrels of its oil per day next year, the lowest amount in over a decade.
Demand is still expected to grow, but not as much as so many anticipated. China, Japan, Western Europe and the US are all stalwart oil buyers with weakening economies.
The national gasoline price in the US has fallen 81 straight days to $2.55 a gallon. This is the lowest level since October of 2009.
Is the global economy struggling? The oil price could be a sign of this, and the economists seem to think this is the case. The oil price will definitely hurt states like Alaska, North Dakota, Oklahoma and Texas, which will see lower revenues and will be forced to trim budgets.
Iran, Iraq, Russia and Venezuela rely heavily on revenues from state-owned oil companies to run their governments. Bank of America estimates every $1 drop in the price of oil costs Venezuela $770 million in annual revenue.
Wednesday represents a Fed meeting and it is likely oil prices will affect the decision.