The News Wheel
No Comments

Why Did Gas Prices Go Down?

Decrease Font Size Increase Font Size Text Size Print This Page
Why Did Gas Prices Go Down?

Why did gas prices go down at the end of last year?
Photo: Mike Mozart via CC

You probably remember how gas prices plummeted at the end of last year, especially since they haven’t quite gone back up again. For nearly a decade, oil cost around $90 to $100 a barrel. Then, starting in August of last year, it dropped suddenly, dipping as low as just over $40 a barrel in March.

At the moment, oil has stabilized at around $50 to $60 a barrel, and though prices aren’t quite as low as they were at the beginning of 2015, even optimists (or pessimists, depending on how you see them) don’t think it’ll go back up to $70 a barrel before the end of the year. Executives think it could be years before prices return to what we were used to.

So why did gas prices go down so much? At the risk of sounding like an undergrad student who just came out of his first Economy 101 class, it’s a matter of supply and demand.

OPEC is the world’s primary exporter of oil in the world, but because the demand for oil has been steadily rising for years, the organization has been facing increasing competition, such as recent shale production in the USA and Canada. By reducing the price of oil barrels to a level that the competition can’t match (because fracking is more expensive than drilling), OPEC ensures that it retains its market share.

In a way, it highlights that all-important principle of capitalism that competition ultimately benefits the consumer. With the national average gas price expected to drop to $2.60 a gallon, we’ve certainly come out a little less impoverished by this development, but it’s hard to tell how it’ll affect us in the future.

 

In any case, it would be a mistake to think this is a sign that we can rely on gas or that electrified cars may not actually be worth it. If anything, lower gas prices makes hybrid cars even more efficient, and the fact that even a giant corporation like OPEC is worried about competition shows just how much in trouble gas is about to be.