Just a few years ago, many experts were relying on traditional economic models to suggest the economy would be in trouble when oil prices started going up. However, now that the U.S. is a leading oil producer, that economic modeling dynamic is no longer true.
The drastic drop in crude oil prices in 2015 and 2016 slowed economic growth. But since that time, oil prices have more than doubled and the U.S. economy has shown strong growth.
The U.S. Energy Information Administration (EIA) recently reported that the daily output of crude oil in the U.S. in 2017 was the highest since 1972, and U.S. oil production is expected to set a new record of approximately 10.6 million barrels in 2018.
The U.S. is projected to produce 18 percent of the world’s oil within the next 20 years; ahead of Saudi Arabia, which will likely fall to second place at 13 percent.
In the U.S., oil and natural gas are projected to supply 60 percent of U.S. energy needs by 2040, even under the most optimistic scenarios for renewable energy growth. Worldwide energy consumption is projected to increase by 27 percent by 2040 and 77 percent of that energy consumption will be met by fossil fuels.
Energy analysts point to several reasons for this turnabout they call “flipping.” Historically, high oil prices slowed economic activity and low oil prices led to a strong economy. However, the leadership role the U.S. plays in world oil markets has helped “flip” the historic model.
The Asian financial crisis in 1998 impacted the deep decline in oil prices, but the trade-off was a sharp boost to the U.S. economy. Ten years later, that model continued when oil prices skyrocketed, and a weak economy followed.
Today, with the U.S. leadership role in world oil markets, higher oil prices give rise to an increase in production and jobs in the U.S. Consumers are affected by rising oil prices, but many experts now believe job creation is a huge positive trade-off.
When oil prices were in a slump at the end of 2015, shipments of manufactured goods tied to commodities like fabricated metal products and construction machinery were down by 12 percent from the year before. A year later, as oil prices recovered, so too did shipments of manufactured goods. By the end of 2017, the tide had turned and shipments were up by 9 percent.
All Americans benefit from a safe, environmentally responsible, and thriving oil industry.
Edward Cross, President, Kansas Independent Oil & Gas Association