Oil Price Drop - Over Supply or Economic Downturn

Since June the price of Brent North Sea Crude Oil has dropped from about $115 per barrel to $85 per barrel as of last Friday October 17th. This reason for this $30 per barrel drop has been stated to be related to a number of factors such as global economic slowdown, the strength of the US Dollar, or an over-supply because of the increased production in the US. I found an article in this weekend's Economist that gives the data to better understand the situation

Oil Price Drop - Information from the Economist, Cheaper Oil Both symptom and balm

Here are some data from this article:

1) A $10 per barrel drop transfers around 0.5% of world GDP from oil exporters to oil importers. This means that oil exporters like Russia have seen a significant drop in their Gross Domestic Product, GDP.

2) The International Energy Agency said it expects global demand to rise by just 700,000 barrels a day down 200,000 barrels a day. So this suggests a little economic slowdown but still growing demand, hardly a recession.

3) Since January 2013 the world is producing about 3 million more barrels per day. During this period the OPEC countries have increased output by about 1 million more barrels per day while the Non-OPEC countries have increased by about 2 million barrels per day.

4) The US production has increased to 8.8 million barrels per day, up 13% in a year.

5) The Russian production is currently 10.6 million per day so a $30 per barrel takes about $300 million per day out of their economy.

The bottom line: The main driver is supply is exceeding demand with a secondary driver being a slowing global economy. This should have a long term positive impact for the US economy.