Oil Prices: What’s Behind the Plunge? SIMPLE ECONOMICS

Earnings are down for companies that have made record profits in recent years, forcing them to decommission more than half their rigs and sharply cut investments in exploration and production. More than 100,000 oil workers have lost their jobs, and manufacturing of drilling and production equipment has fallen sharply. 

As oil prices have continued their steady decline this year, rig after rig has been shut down, costing thousands of jobs in the United States. Yet major oil producers have been loath to pull the plug on their most ambitious projects — the multibillion-dollar investments that form the backbone of their operations.

Until now. On Monday, Royal Dutch Shellended its expensive and fruitless nine-year effort to explore for oil in the Alaskan Arctic — a $7 billion investment — in another sign that the entire industry is trimming its ambitions in the wake of collapsing oil prices.

The announcement was hailed as a major victory by environmentalists, who had fought the project for years, only to be stymied by pressure inside and outside the industry to increase domestic oil production.

But at a time when global markets are glutted with oil, thanks to the advent of new drilling techniques, the announcement also confirmed major oil companies’ increasing willingness to turn their backs on the most expensive new drilling prospects in the Gulf of Mexico and suspend plans for new projects in Canada’s oil sands.