Oil prices have dropped nearly 30% since June of this year and subject to the rules of a zero sum game there will be winners and losers. Over the short run, all oil-based energy consumers are winners and that includes me – I recently filled my gas tank at $3.10 per gallon! The consumer’s short-term win will be at the expense of oil producing countries and companies, but what will be the impact of a sustained lower oil prices?
A look at the production numbers helps us to better understand the dynamic. The world produces 90 million barrels of oil every day, which five months ago was generating $3.5 trillion of annualized revenue. Today that same production generates $1 trillion less in annualized revenue, which means consumers will put most of that $1 trillion in their pockets – at least until they hop on Amazon and buy one of 200 million products.
The U.S. occupies the unique position as the largest consumer, importer, and producer of oil. While our oil production has increased from $5.4 million barrels a day in 2010 to $8.2 billion barrels a day in 2014, we are still a net importer of oil. Accordingly, the US will continue to be a net winner when oil prices decline – at least until our energy production exceeds our consumption.