Crude oil prices are sagging, down to the lowest level in 17 months in the United States. Gasoline prices have been sliding. Saudi Arabia this week cut the price of its benchmark Arab Light oil to the lowest point since December 2008. And on, Thursday, Citigroup shaved its oil price forecasts for final quarter of the year by about 10 percent.

The drop in prices is providing a boost to the U.S. economy and U.S. consumers, but it could put a dent in revenues in countries such as Russia, Iran, and Iraq, where oil exports play an enormously important role in supporting economic growth and government finances. Europe, meanwhile, is only partially benefiting from the decline in prices because the euro has been weakening, making it relatively more expensive for Europeans to purchase oil, which is priced in dollars.


While it isn't unusual for oil prices to fall this time of year -- between the summer driving season and the winter heating season -- deeper factors are at play this year. Here are four of the most important.

1. Global oil production is growing, led by the United States.

Thanks to shale oil drilling largely in North Dakota and Texas, U.S. crude oil production has climbed to 8.5 million barrels a day, its highest level since 1986. Including natural gas liquids, U.S. oil output is nearly even with Saudi Arabia. Production of "tight" oil -- from the fracking of shale -- has gone from a marginal slice of U.S. output to nearly 4 million barrels a day since 2010. North Dakota is producing more than Libya.

One symbol of this surge came last weekend, when energy giant Conoco loaded an oil tanker in Alaska and had it set sail for South Korea, the first cargo of Alaska North Slope crude to go to Asia in over a decade. (An exception to the ban on U.S. crude oil exports allows some exports from Alaska.) It was the first in what Citigroup's head of global commodities research, Edward Morse, says will "become an armada" of about 100,000 barrels a day. The industry is also increasing pressure on the Obama administration to allow oil exports from ports along the Gulf of Mexico.

Russia's oil production is growing, too. The country's output is approaching its post-Soviet high of 11.48 million barrels a day, reached in 1987. Russia produced 10.64 million barrels of crude and condensate in January, according to Russian data quoted by Bloomberg News.

Prices have also been driven down by a recovery in production in Libya, where civil war has intermittently shut down the country's oil wells. But Libya is currently producing 925,000 barrels a day, a 14-month high, according to Argus Global Markets, a respected industry newsletter.

2. World consumption is anemic.

China's oil consumption, up about 2 percent since last year, isn't growing as fast as expected. U.S. vehicle fuel efficiency requirements, set by the Obama administration in 2009, are working. As a result, motor fuel consumption is mostly flat.

European economies, meanwhile, are weak. Combined with the weak euro -- which is near its all-time low -- that means Europeans are less inclined to use energy. and a strong U.S. dollar means that other countries won't feel the full benefit of lower oil prices.

3. The drop in prices will inflict economic and political damage. That might not be such a bad thing.

Crude oil and oil products made up 46 percent of Russia's budget revenues in the first eight months of this year. At a time when the West is trying to sanction Russia for its incursions in Ukraine, a 10 to 20 percent drop in oil prices could prove powerful. Still, it's still a far cry from the 1980s, when Saudi Arabia produced enough oil to flood the market and drive prices down so far that many experts say it sped up the fall of the Soviet Union. That's not going to happen now, but Russia could be squeezed a bit.

Iran, whose oil exports are limited by sanctions related to its refusal to limit its nuclear program and open it up to greater international scrutiny, will also suffer a setback. Iran's oil minister Bijan Namdar Zangeneh late last month called on the Organization of the Petroleum Exporting Countries to keep oil prices from falling any further. “Given the downward trend of the oil prices, the OPEC members should make efforts to offset their production to keep the prices from further instability,” Zangeneh said according to Shana, a news agency supported by Iran's oil ministry.

Countries hoping for an OPEC rescue are counting on  Saudi Arabia, the swing producer. It's hard to tell what Saudi Arabia is thinking. It cut production by 400,000 barrels a day in August; it could do that again. OPEC doesn't have a formal meeting again until Nov. 27, but discussions are still going on.

The drop in oil prices also squeezes U.S. domestic producers and could make some shale oil prospects less attractive. Saudi Arabia might be hoping that U.S. shale oil in North Dakota or Canada's oil sands -- where costs can run high and transportation expensive -- is shut down first.

4. Caution is wise, because a rebound in oil prices is easy to imagine.

Before 2008, the average annual price of West Texas Intermediate crude oil -- a U.S. benchmark -- was never more than $66 a barrel. It briefly fell below $90 a barrel on Thursday, down about $14 since late June. But that's still high by historic standards, and it could go back up again for three reasons.

First, at this time of year, many refineries shut down for repairs and maintenance. When they come back on line, prices could recover.

Second, there can be a bit of irrational exuberance. The United States has made huge strides in slashing oil imports, but it's still a big net oil importer.

Finally, consumption bounces back when prices drop and economies recover. U.S. total oil consumption rose 2.5 percent in 2013, the largest increase since 2004.

Adam Sieminski, administrator of the federal Energy Information Administration, has warned that world petroleum consumption will climb 38 percent between 2010 and 2040, almost entirely because of growth outside the Organization of Economic Cooperation and Development countries. That could mean much higher prices.