It's The Oil, Stupid

Williston Basin, North Dakota

A barrel of oil now goes for 57 bucks or a 40% decline since October. Go figure. A price cut of 25% (if maintained) means that global GDP will be roughly 0.5% higher than it would be otherwise. Some countries of course will gain a lot more than that average - In China, a $1 drop per barrel saves the country $2.1bn. So for instance, the world produces just over 90m b/d of oil. At $115 a barrel, that is worth roughly $3.8 trillion a year; at $85, just $2.8 trillion. Any country or group that consumes more than it produces gains from the $1 trillion transfer—importers, most of all.

For the US it will be a mixed bag because America is simultaneously the world’s largest consumer, importer and producer of oil. On balance cheaper oil will help the average Joe but not as much as it used to. Goldman Sachs reckons that cheaper oil and lower interest rates should add about 0.1 percentage points to growth in 2015. But that will be more than offset by a stronger dollar, slower global growth and weaker stockmarkets.

I started my career in First Boston's natural resources group (NRG) before switching to financial services. The former much more interesting.