Oil's plunge


MONIKA WISNIEWSKA/ISTOCKPHOTO

The biggest business story of the year is the staggering drop in oil prices and the wide ripple effect worldwide. Oil has plunged nearly 50 percent over the last six months to levels not seen in years.

There are many reasons for the decline. Libya has quadrupled its oil output this year, and the U.S. is producing oil at the fastest rate in nearly three decades. Meanwhile, global demand for oil has slumped as economic growth slows in Asia and Europe. The International Energy Agency has cut its forecasts for oil demand growth five times in the last six months.

Oil's freefall has left some oil-producing countries facing a financial crisis. Russia's currency has lost 18 percent of its value this month, and the country's economy -- already battered by Western sanctions -- is on the brink of a recession.

The picture is quite different in the U.S., where drivers are celebrating a steep drop in gasoline prices. Gas has now fallen below the $2-a-gallon mark in 13 states across the country. If prices stay low, the average American family could save $750 over the next year, according to IHS. That would be similar to cutting taxes in the U.S. by between $100 billion and $125 billion, Goldman Sachs economists estimate.

And here's one area where the middle class can cheer. That drop in gas prices helps everyone, but it's expected to help the middle class the most.

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