#2 Article: Oil tumbled $2 on Tuesday to below $60 a barrel, sinking to the lowest level since February and prompting OPEC's president to call on the exporter group to deepen supply cuts.
High oil prices tend to lead to low oil prices for two reasons. First, consumption falls as conservation measures and efforts at substitution begin. Second, oil producers get used to high oil revenues because government expenditures skyrocket as prices go through the roof, and have trouble spending less, as oil prices start to come down due to point number one. This means that to maintain revenues in a climate of falling prices, they pump more oil instead of less - thus accelerating the fall in oil prices even further, and requiring yet even more oil production to make up the additional loss of revenues. (Of course, if the price goes low enough, consumers start using too much oil, and the price skyrockets yet again, as consumption overwhelms supply). |