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(Forbes) One of the questions I am most frequently asked is “What factors led to the precipitous drop in oil prices?” Some have suggested that this is all OPEC’s fault, while others have blamed either surging U.S. shale oil production or falling demand.

I addressed the demand issue back in December in The Fallacy of Peak Oil Demand . To summarize, since 1983, annual global demand for crude oil has only fallen twice; a small decline in 1985 and another decline in 2009 in response to the financial crisis. The growth rate for crude oil has been remarkably consistent, adding an average of almost exactly a million barrels per day (bpd) for more than 30 years.

The confusion around the demand issue is that there are times that demand growth slows, and that is often mistranslated into “falling demand.” For example, the International Energy Agency (IEA) has forecast that demand growth will slow to 1.2 million barrels per day (bpd) this year, but this follows very strong demand growth of 1.6 million bpd in 2015. Nevertheless, this year’s forecast of 1.2 million bpd of new demand growth is still above the average growth rate of the past 30 years, and is certainly not a decline in demand.

No, the reason the oil prices crashed was because supply growth has outpaced demand growth for several years, and that has led to swelling global inventories. The spurt in supply growth was caused primarily by U.S. shale oil producers, who since 2008 have added production at the fastest rate in U.S. history: The shale oil boom resulted in the fastest ever gains in U.S. oil production in history. In fact, U.S. producers added more barrels of oil to the market than any other major oil-producing region in the world: U.S. oil production in the past decade outpaced every other region in the world.
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This rapid and unexpected increase in U.S. oil production added millions of new barrels of oil to the market, and this resulted […]