Oil Prices: What Is Behind the Drop? Simple Economics




The oil industry, with its history of booms and busts, appears to be in the early stages of its latest downturn.

The price of oil has plunged more than 55 percent to under $50 a barrel since June. That is the lowest price since the depths of the 2009 recession.

On Tuesday, Brent crude, the main international benchmark, was down about 2.7 percent to $46.14 per barrel. The American benchmark fell almost 3 percent to $44.78 per barrel.

Oil analysts predict that the price could fall below $40 before beginning to rebound. But even optimists say $70 a barrel by the end of the year is highly doubtful.

Why is the price of oil dropping so fast? Why now?

This a complicated question, but it boils down to the simple economics of supply and demand.

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