Final answer:
The sharp decrease in oil prices in the fall of 2014 was likely due to either an overproduction or overstocking of oil, causing supply to exceed demand. As seen historically in the 1973 oil crisis, events that affect the supply of oil can shift the prices dramatically. In both situations, basic principles of economics, specifically of supply and demand, play out.
Step-by-step explanation:
Based on the principles of supply and demand, the most likely reason for the sharp decrease in oil prices from over $100 per barrel to less than $50 per barrel in the fall of 2014 is that there was an increase in oil supply or a decrease in its demand. If suppliers were producing more oil than the demand, the surplus oil would cause prices to decrease sharply. Likewise, if fewer consumers were demanding oil, whether due to economic conditions or more efficient use of energy, that lower demand could also cause prices to fall.
Take, for example, the situation faced by the U.S. in 1973. When OPEC cut off oil exports to the U.S. because of a diplomatic disagreement, they effectively shifted the supply curve to the left, causing a reduction in supplies from So to S₁. This caused a temporary increase in oil prices until consumption habits changed and the demand became more elastic.
In the case of 2014's price drop, it was likely due to either an overproduction or overstocking of crude oil, making it exceed demand and thus falling the prices sharply. Remember, according to basic principles of economics, the price of a good or service is determined by supply and demand; when supply exceeds demand, prices fall.
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