According to the news: "The price of a barrel of the North American oil benchmark sank six per cent on Wednesday after new data showed oil inventories are rising to the highest levels on record.

West Texas Intermediate was trading at $50.91 US a barrel on Wednesday, down $3.07 or more than six per cent. The decline came a day after oil hit a 2015 high on Tuesday.

The catalyst for Wednesday's sell-off was new data from the U.S. Department of Energy that showed the country now has 482 million barrels of oil in storage. That's a jump of more than 10 million barrels and the highest level since 2001."

So why does oil price drop so fast?

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

United States domestic production has nearly doubled over the last six years, pushing out oil imports that need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets, and the producers are forced to drop prices. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping.

On the demand side, the economies of Europe and developing countries are weakening and vehicles are becoming more energy-efficient. So demand for fuel is lagging a bit.

When are oil prices likely to recover?


In my opinions, not anytime soon. Oil production is still increasing in the United States and some other countries.

But production is likely to begin declining in the second half of the year, and then crude prices will also begin to recover in a lasting way. The history of oil is a history of booms and busts followed by more of the same.


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