Low oil prices have provided a windfall to consumers around the world. In the United States, the second largest importer of crude (which was recently overtaken by China), millions of motorists have seen their gas bills plummet over the past year.
The collapse in oil prices since June of last year could result in “one of the biggest transfers of wealth in history,” as the Washington Post’s Steve Mufson put it in a December 2014 article. Oil producing countries like Saudi Arabia and Russia would see their stratospheric export revenues vanish – and oil-consuming nations would cash in. U.S. consumers may wind up with an extra $700 in 2015 due to low gasoline prices. Related: Oil Markets Have Little To Fear From Iran For Now
The head of the U.S. Energy Information Administration said in January said that low oil prices provided a “tremendous positive impact” on the American economy.
But fresh economic data is confounding that projection. The U.S. economy expanded at a meager rate of just 0.2 percent in the first three months of 2015, and that figure could be revised lower, according to the Wall Street Journal. The poor performance can be attributed, at least in part, to low oil prices. Related: A Potentially Massive Win For Fracking In Texas
That is because the U.S. is not just a major oil importer, but also a massive oil producer. The fall in oil prices has inflicted widespread damage on oil-producing states like Texas, Alaska, North Dakota, and Louisiana. If not for severe cutbacks in capital investment on behalf of American oil companies and other related sectors, U.S. GDP would have been 0.75 percentage points higher.
The billions of dollars in slashed investment ripples through all sorts of industrial activity – from manufacturing and heavy equipment, to financial services, commercial real estate and even housing. Related: How Much Longer Can The Oil Age Last?
Oil prices have rebounded quite a bit since March, but how quickly drillers return to the oil patch is unclear. Rig counts continue to decline, having fallen by an additional 11 rigs for the week ending on May 8. Employment in the oil and gas sector is now at its lowest level in more than a year, with 3,300 more positions eliminated in April. Oil and gas jobs have now declined in four months out of the last six.
The muddied economic outcome from the oil bust comes as a surprise. In April, the Federal Reserve Bank of Dallas concluded that “[d]espite the growing importance of the oil and gas sector in recent years, the U.S. as a whole benefits” from low oil prices. That sentiment has certainly been the conventional wisdom as of late, but given the latest macroeconomic data, it may not capture the entire picture.
By Charles Kennedy of Oilprice.com
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