This winter, there's good news for drivers. Gas prices are cheaper than they've been in
years. But it wasn't so long ago that people were complaining about high prices. So what
happened? The first thing to know is that gasoline prices are largely driven by oil
prices, and those oil prices are set in a global market, and largely determined by the
supply and demand of oil. The countries that produce the most oil right now are Saudi Arabia,
Russia, and the United States. Saudi Arabia is part of an organization called OPEC. In
the past, OPEC has often tried to coordinate its production in order to try to get the
price it prefers. On the other side, the biggest consumers of oil are the U.S., China and Japan.
Starting in the 2000s, oil prices began rising rapidly. That was because China was growing
fast and oil production wasn't keeping up. This led to a huge spike in prices and a lot
of talk about peak oil. But those higher prices also made it profitable for the U.S. and Canada
to start going after harder-to-extract oil in shale formations and tar sands. That led
to a rise in supply. By 2014, that extra supply, combined with a slowdown in demand in Europe
and Asia all came together to create a price crash. And that's better news for some than
others. In Russia and some OPEC countries, low oil prices threaten their national budgets.
OPEC could try to cut production to try to prop up the price of oil, but they haven't
done that this time. They're hoping that low prices will make some of the newest U.S. producers
unprofitable. In the meantime, American consumers are getting a big break. If gas stays under
$2.80/gallon, families could save $700 over a year, by one estimate. That would boost
the economy. In recent years, the U.S. has been using less and less oil because people
are buying more fuel-efficient cars. But when gas prices go back down, we do the reverse
and start buying more gas guzzlers and SUVs. So when buying a vehicle, keep in mind that
a car can last 10 years or more, but if history is any guide, low oil prices won't last that long.