The ever-changing oil industry is currently facing a downturn, as the price of oil per barrel has been cut roughly in half since June 2014, the lowest since the economic recession in 2009. Over the last decade, oil prices were normally around $90 or $100 per barrel. On Tuesday, the international standard of Brent crude oil was trading at around $46 per barrel while American oil was trading at around $43 per barrel.
There are several different reasons why oil prices have been falling so sharply. A central factor in the price drops is the ongoing reluctance of OPEC, a cartel of oil producing countries, to cut production of oil in order to stabilize markets that are oversupplied. In June of 2015, OPEC chose to keep its production at 30 million barrels a day to maintain market share and in response to the shale oil production boom in the U.S. Meanwhile, the demand for oil and fuel is dwindling worldwide. The economies of Europe and developing countries are weakening and automobiles are becoming more energy-efficient. China, the world’s biggest oil importer, recently devalued its currency, suggesting the economy may be worse off than expected. The combination of not cutting oil production and less demand for oil is causing the drop in prices.
So what does this mean for the economy worldwide and in the U.S.? For starters, Americans, Europeans, and consumers around the world will save money because of the sharp decline in the price of diesel, heating oil, and natural gas. The decline in gas prices also helps lower-income people because fuel costs are a large part of their relatively smaller earnings. Oil producing countries and companies are not as fortunate as consumers. Companies that had made record profits in recent years have had to shut down more than half of their rigs, as well as cut investments and exploration in different areas of production. More than 200,000 oil workers have lost their jobs, and manufacturing of drilling and production equipment has fallen harshly. Countries that rely heavily on oil production such as Venezuela, Iran, Nigeria, Ecuador, Brazil, and Russia are a few countries that are suffering economically. In the United States, Alaska, North Dakota, Texas, Oklahoma and Louisiana will face economic challenges.
On December 4th of this year, OPEC will meet and discuss possibly cutting oil production which would raise prices and help out oil companies. Iran, Venezuela, and Algeria have been persistent that the cartel should cut production to firm up prices, but Saudi Arabia, the United Arab Emirates, and other gulf countries are refusing to do so. Saudi Arabia officials have said that if they cut production and prices go up, they will lose market share and their competitors will profit. While some analysts think they are bluffing, Saudi Arabia has said they are willing so see oil prices go lower.