Since June of this year, oil prices have dropped a record 25%, quite the opposite of what was expected by most predictors of oil prices. In a decade dominated by the idea of “peak oil”, the fact that the oil supply has risen by so much and so quickly has astounded those keeping an eye on the prices, especially when the world’s largest oil exporting region has been locked in a state of continuous warfare for the past decade (with conflict escalating as the Islamic State gets its hands on more and more oil fields and refineries in Western Iraq.)

No one theory has come forward as the generally accepted explanation for this glut in oil, but some of the more prevalent theories include the growth of fracking in the United States, a rise in Saudi productivity to combat said Fracking, and a slump in European economic growth.

American Fracking

As controversial as it is, Hydraulic Fracturing (or “Fracking”) is seen as the wave of the future when it comes to accessing previously untouchable oil reserves. Throughout the United States, there exist innumerable shales and basins from which oil can be tapped. This vast reserve of oil promises to extend the life of “peak oil” for a century or possibly longer if the process continues to be refined.

If fracking has really begun to take off in the US, then that may explain the current glut in oil. The refined process promises to make oil prices drop as fracking supplements the already considerable output from Saudi Arabia. Of course this will mean prices will again rise in the future as more traditional oil fields die out, but for now, it would mean a drop in prices as the world transitions.

What does that mean?

If indeed large scale fracking is on the horizon, the implications are gargantuan. As heavily dependent on oil the US already is, it is easy to imagine the extra inertia that will be involved if it is not forced off of oil by rising prices. With new technology from entrepreneurs like Elon Musk coming out, the transition from fossil fuel to renewable energy is speeding up, but, if fracking takes off, it may become an entirely different ballgame.

Saudi Productivity

Here’s where the theories get interesting, though. According to some, the recent drop in price is due to fracking, but not in the way one might think. Many believe that the Saudi Government has purposefully increased production in an attempt to drive American fracked wells out of business. This is because the cost associated with fracking are far greater than traditional oil fields. Combined with Saudi potential for expansion (most economists believe that Aramco operates under peak capacity to inflate prices), makes for a very interesting economic game.

What does that mean?

If it is true that Aramco is trying to undercut American fracking, it may mean that the proliferation of fracking will be set back many years. If this is the case, renewable energy resources may have the time to get up and running and begin to push out fossil fuel dependency. Only time will tell.

EU slump

The last of the three major theories is the idea that, instead of an oil glut, there is lessened oil demand. Of the three, this is the most difficult to verify, as up-to-date (and accurate) information on economic growth is incredibly difficult to come by. That being said, the recent drop in price could very well be just a minor blip on the radar indicating slowed growth in the still-slowly recovering European Union.

What does that mean?

Simply put, that the EU’s economy is not recovering as quickly as predicted from the Recession. Until an updated report is issued by the EU on the state of their economy, we cannot know with a fair degree of certainty if this is the case. As of the 2013 report, the EU as a whole reported a 0.1% GDP growth rate, with individual states reporting anywhere from -5.4% (cyprus) to +4.3% (Latvia).

Whatever the case, oil prices have dropped faster than can be reasonably explained. Whether this trend will continue or not is up for debate, but as long as it keeps up, you can bet commuters will be ecstatic.