A barrel of U.S. crude oil has fallen below $40 per barrel for the first time since the end of the global economic crisis. The price of oil has fallen for eight consecutive weeks, the longest since 1986. Oil is down 34 percent from its high of $61.43 this year and 62 percent from its high of $107.26 last year.
The reason for this price fall is the rapid increase in the production of oil, which has outpaced the growth in global oil demand. The U.S. is drilling out oil at a rate not seen in decades. Meanwhile, even with the prices being so low, Saudi Arabia and other OPEC nations haven’t cut down their oil production. On the contrary, they have upped their production in an effort to keep competitors like Iraq from stealing the customers.
“Everyone is in the mode of ‘Oil prices are down and I need to produce as much as I can to make up for it,'” said Jamie Webster, a senior director at IHS Energy. “That makes lots of sense on a micro level, but on a macro level,it brings us to the situation we are at right now.”
Between 2008 and 2015, American oil production has increased by 75%, topping nine million barrels a day late last year. OPEC, which no longer dictates production quotas for its members, has a 30-million barrel a day outut target that it routinely exceeds. Even despite the ISIS problem, Iraq’s oil output has also increased from 3.4 million barrels a day in November last year to 4.1 million last month.
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While the falling prices of oil are making the energy investors feel the pain, normal people in the U.S. are saving an average 80 cents per gallon of gasoline as gasoline is averaging at $2.63 a gallon which was $3.44 a year ago. Analysts say that the gas prices could drop below $2 a gallon in many areas of the country later this year.