How low will they go?

Gas prices keep dropping, as low at $1.92 at some of the pumps in Mineral County.  Residents haven’t seen prices like these since before the 1990’s.  According to an article in The New York Times, gas was trading at around $38 a barrel in December.

This is roughly half of what a barrel of crude cost in June 2014.  With earnings down for companies that have made record profits in recent years, they have decommissioned nearly two-thirds of their rigs and sharply cut investments in exploration and production.  According to the article, more than 200,000 oil workers have lost their jobs, and manufacturing of drilling and production equipment has fallen sharply.

The world of oil economics is a complicated one, but basically the reason for the drop in prices is that the US has nearly doubled its domestic production over the last six years.  Pushing out oil imports from other countries such as Saudi, Nigerian and Algerian oil.  This has caused those producers to drop prices and sell their exports elsewhere.  Also, countries like Canada, Iraq and Russia have increase oil production.  

On the global demand side of the equation, the economies of Europe and developing countries are weak and vehicles are becoming more energy-efficient.  As a result, demand for fuel is lagging.  

US households are predicted to spend an average of $750 less on gas this year, according to the US Energy Information Administration.  In the US, the states of Alaska, North Dakota, Texas, Oklahoma and Louisiana will be faced with economic challenges due to the drop in prices.

A central factor in the drop in prices, analysts say, is the continuing unwillingness of OPEC, a cartel of oil producers, to intervene to stabilize markets that are widely viewed as oversupplied.  Prices of OPEC’s benchmark crude oil have fallen about 50 percent since the organization declined to cut production at a 2014 meeting in Vienna.

Demand for fuel is recovering in some countries, which may increase prices a little in 2016, but overall, oil prices will remain low in the coming year.