When a commodity costs more to produce than the current market price, producers usually stop producing it
It's called the law of supply and demand.
When a commodity costs more to produce than the current market price, producers usually stop producing it. But when it comes to U.S. crude, a global crash in prices hasn't been matched by deep cuts in production.
The biggest impact so far has been felt on investment in new wells, as U.S. producers big and small have slashed capital spending and sidelined drilling rigs. As of this month, about 350 rigs were drilling for oil in the U.S. — about a quarter of the peak in October 2014.
That pullback has brought economic pain to much of a U.S. oil industry that saw big gains in jobs and wages during a production surge that began in 2012. But while investment in new production has dried up, oil continues to flow from the wells that have already been drilled.
Overall output has fallen by about 6 percent since peaking a year ago, but many producers have opted to keep on pumping, even as prices remain stuck at around $40 a barrel — less than half the peak of mid-2014.