Pumped up: why Americans are (mostly) cheering the plunge in oil prices.

• Author: Smith, Patricia
• Position: NATIONAL

Alanah Rogers, 18, drives about 30 miles a day, mostly between her parents' house in St. Louis, Missouri, her classes at a community college, and her job at a restaurant downtown. Last year, when she filled up the tank of her 2005 Cadillac Escalade, it typically cost her at least $80.

"Before, 1 was very selective of the places I went," she says. "I never filled my tank all the way up unless someone else offered."

But in the past few months, the national average price of gas has plummeted from $3.68 a gallon in June to $2 in late January, and it's made a huge difference for Rogers. Now, she pays about $55 for a full tank, and she's been driving way more.

After years of steady increases, the price of oil has plunged by more than 55 percent in the past six months. That's good news for most Americans. It means cheaper gas, lower heating bills, and more money for paying the rent, eating out, buying new clothes, or splurging on a new TV.

That has ripple effects throughout the U.S. economy. As spending in stores and restaurants increases, more waiters and sales clerks are hired. More jobs means a lower unemployment rate. Economists say the drop in oil prices is equivalent to a $125 billion tax cut.

The federal Energy Information Administration estimates that the typical American household will save $750 this year because of lower gas prices. Millions of people in the Northeast and Midwest who depend on oil A and propane to heat their homes will save an additional $750 this winter.

"If you're earning $30,000 or $40,000 a year and drive to work, this is a big deal," says Guy Berger, a U.S. economist at Royal Bank of Scotland.

The drop in gas prices doesn't just affect us here at home; it has global implications. Lower oil prices are putting a strain on oil-producing countries like Russia, Venezuela, and Iran that are hostile to U.S. interests (see box, p. 10). ISIS--the Islamic militant group that now rules a large swath of Syria and Iraq and has been beheading Western journalists--could also suffer, since it's been using income from captured oil wells to finance its operations.

U.S. Oil Boom

Why have oil prices dipped so far and so fast? As with the price of anything, it has to do with the law of supply and demand (see box above): When the supply of oil increases or demand falls off, the price drops. Conversely, when the supply shrinks or demand goes up, prices rise.

In the last few years, the amount of oil being produced has surged. The game-changer has been American oil production, which has nearly doubled in the past six years. In fact, it's increased so much that the U.S. is now the world's leading oil producer, having surpassed longtime leader Saudi Arabia (see charts, facing page).

The boom has been made possible by two new drilling technologies that have allowed the extraction of shale oil and natural gas once considered too difficult and too expensive to reach.

The first is hydraulic fracturing--known as fracking--which uses highly pressurized water, sand, and chemicals to force oil and gas out of shale rock formations (which is why it's sometimes called shale oil). The second is horizontal drilling, in which a drill goes down 100 feet or so, then turns sideways to extend a well out horizontally. This enables the extraction of oil and gas from a much larger underground area--sometimes more than a mile wide.

Environmentalists have concerns about these new technologies, particularly fracking, which they say contaminates water supplies and causes air pollution.

But the increase in production-coupled with...