Gas prices have tumbled in recent months, and while prices still aren’t as low as they could be, it’s a marked improvement on the outrages prices drives have faced at the pumps for the last five years. Why are gas prices tumbling? One word: fracking. Fracking has given US oil producers a leg up on the OPEC cartel that has left the US at the mercy of Saudi oil barons for decades. OPEC has recently been forced to increase their production and lower oil prices in order to stay competitive with the oil boom in the United States (which, by the way, has virtually all happened on private land).
US domestic oil production has boomed due to fracking.
"The growth of oil production in North America, particularly in the US, has been staggering," says Jason Bordoff.
Speaking to BBC World Service’s World Business Report, he says that US oil production levels are at their highest in almost 30 years.
It has been this growth in US energy production, where gas and oil is extracted from shale formations using hydraulic fracturing or fracking, that has been one of the main drivers of lower oil prices.
"Shale has essentially severed the linkage between geopolitical turmoil in the Middle East, and oil price and equities," says Seth Kleinman, head of energy strategy at Citi.
What’s more, the majority of US shale oil is far cheaper to produce than a lot of conventional crude. So in any long term price war, US producers would be likely to win.
"Some 98% of crude oil and condensates from the United States have a break-even price of below $80, and 82% had a break-even price of $60 or lower," Maria van der Hoeven, executive director of the International Energy Agency, told Reuters.
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Isn’t the free market a beautiful thing? When there’s competition, the consumer always wins. However, when government starts to interfere, the consumer always loses.