Oil prices have been falling dramatically this year, to the delight of many American drivers. In the last six months, oil prices have dropped 45 percent.
In October the price of oil was down to about $80 a barrel. On Friday it sank to $65 a barrel — the lowest price since 2009. It is about the law of supply and demand. There’s abundant supply, and prices have continued to fall, since Saudi Arabia convinced OPEC to keep pumping at current levels rather than cut back production.
“For four years and a half, we had a very decent price. Now the price has declined, but that does not mean that we should really rush and do something. We have to wait and see how the market will settle,” said OPEC Secretary General Abdullah al-Badri.
Dropping prices undercut Iran and Russia. Both rely on higher oil prices to fund their governments. Russian President Vladimir Putin is playing down the OPEC decision as no big deal. “For us, from the very beginning, it was clear that once OPEC did not announce a reduction in production, the prices would react to it, that they will be slightly lower,” he said.
But it is estimated that Russia needs the price of oil to hover around $100 a barrel to pay its bills. Add the bite of Western sanctions over Moscow’s actions in eastern Ukraine, and Russians are hurting.
Iran needs prices at about $100 a barrel too; its currency dropped by nearly 6 percent against the dollar after OPEC announced it won’t cut production. Iranian President Hassan Rouhani called the move “treacherous,” adding that "the Islamic Republic of Iran and people of the region will not forget such conspiracies or, in other words, treacheries against the interests of the Muslim world. It will remain in the minds of the people, and they will react to it.”
OPEC’s decision could be seen as a geopolitical jab at two nations supporting Syria’s President Bashar al-Assad. Saudi Arabia and other Gulf nations like Qatar are supporters of the opposition in the Syrian civil war.
And remember: It's not just Middle East wells creating a world market awash in oil. North American shale oil is also feeding the glut. U.S. production is at its highest in three decades. As the world economy slows, demand falls, and downward price pressure continues.
For now, the world’s pain is your gain at the pump.
What are the reasons for the recent drop in prices?
Who are the winners, and who are the losers?
Can the oil market reconcile itself with low prices?
We consulted a panel of experts for the Inside Story.