Cheap oil used to be a slam-dunk positive for the American economy.Abrupt declines in oil prices would create huge savings for consumers and businesses alike. It was like a massive tax cut — and one that didn’t blow up the federal deficit.
But the shale oil boom has since changed that equation. The United States today is not only the largest guzzler of oil, it’s vaulted to the top of the production leaderboard as well. US output recently surpassed Saudi Arabia and Russia for the first time since 1973.
That means even though President Donald Trump is calling for oil prices to go lower, there aresignificant negative consequences of the deepening bear market in oil.
Lower oil prices threaten to wipe out jobs, set off cash crunches at overleveraged frackers and depress business spending. The 2014-2016 oil crash caused hundreds of thousands of job cutsand dozens of bankruptcies.
“The US now responds to lower oil prices like an OPEC member,” Pantheon Macroeconomics chief economist Ian Shepherdson wrote to clients last week. “When the president calls for lower oil prices, he’s ignoring the new reality.”