Since at least the 1970s, higher oil prices have been a drag on the U.S. economy, but with U.S. oil production now surging that could be changing. Greg Ip writes in The Wall Street Journal that high oil prices, while still hard on consumers, are generating enough economy activity in America to offset the pain.
Credit this to the emergence of the U.S. as a leading oil producer and, soon, net energy exporter. More expensive oil is still a tax on consumers. But that tax is increasingly offset by the boost to energy investment, production and jobs. The U.S. business cycle is thus now tied in complex and surprising ways to the global oil market.
The rise in U.S. oil production, thanks to shale, is nothing short of spectacular. The federal Energy Information Administration projects that daily output, which was the highest since 1972 last year, will rise to a new record of 10.6 million barrels this year. BP PLC’s latest world energy outlook predicts the U.S. will account for 18% of world oil and related liquids output in a little over two decades, well ahead of second-place Saudi Arabia at 13%.
Even more consequential: The U.S. deficit in crude oil and refined products has shriveled to four million barrels a day last year from 12 million in 2007. The EIA predicts the U.S. will become a small net exporter by 2029, and if all other energy is included, in just four years.
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