Why are oil (and gasoline) prices so low?

We all know that oil prices are lower than they were in the recent past because supply is greater than demand. In fact, OPEC oil ministers are meeting this week to try to fix supply, so it will be more in line with demand.

All of this seems a little strange, though. We are going into the winter months, when demand for oil normally rises because many people around the world heat their homes with oil. We are using somewhat less gasoline in the United States, but apart from the hurricane disruptions, not very much less than earlier this year. While we are going into a recession, it doesn’t seem to have hit with full force yet. What other factors may be involved in the current lower prices? In this post, I will discuss factors besides those we usually think of as supply and demand that may be involved.


While this post is primarily about oil prices, the decrease in oil prices can be expected to have an impact on gasoline prices as well. The drop in retail gasoline prices has not been quite as dramatic as the drop in oil prices because gasoline prices are affected by other factors in addition to the price of oil. Robert Rapier has a post talking about some issues affecting gasoline prices. See also my article from July Why isn’t the price of gasoline even higher?, talking about the differential between gasoline and diesel prices.

The Oil Drum