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.
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 cuts and 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."
Crude plummeted 22% in November, marking the worst month since October 2008. Despite that meltdown, Trump has repeatedly pressured OPEC and Saudi Arabia not to dial back production to balance the market. OPEC and Russia are nonetheless expected to seriously consider slashing output at Thursday's highly-anticipated meeting in Vienna, Austria.
Of course, the recent plunge in oil prices is not nearly on the same level of the last downturn. And millions of Americans are enjoying a windfall caused by the slump. And that's a huge plus because the United States is still a consumer-led economy.
A gallon of gasoline fetched $2.49 on Friday, down from $2.80 a month ago, according to AAA. Consumers could use that extra cash to splurge on Amazon (AMZN) this holiday season.
But many residents of Texas, North Dakota, Alaska and other oil-producing states are not celebrating. Crashing oil prices can threaten their livelihoods.
"The decline in oil prices is not an unalloyed good," said PNC chief economist Gus Faucher. "The benefits are dispersed but the hits are geographically concentrated."
Faucher said that he believes the impact of cheap oil is now neutral on the overall US economy.
Shale is a gamechanger
Consider what happened during the 2014-2016 oil crash. Gasoline prices plummeted from $3.70 a gallon to just $1.72, according to federal government stats. That helped boost consumer spending.
And yet US GDP growth decelerated sharply from above 3% in early 2015 to sub 2% the next year. Capital spending in the mining sector, which is mostly oil, plunged by $149 billion, or 61%, from peak to trough, according to Shepherdson. He found that matched the pick-up in consumer spending over that span.
One big shift is that shale oil now makes up at least half of America's oil output. And shale oil companies, unlike their larger rivals, quickly ramp up and down their activity based on price swings. And when that happens, other parts of the economy feel the impact. The pain from cheap oil can spill over into steel, manufacturing, real estate, transportation, logistics and banking.
All told, Shepherdson estimates that the oil crash wiped 0.3 percentage points off US GDP growth in 2014 and another 0.2 percentage points in 2015.
"In the shale new world, lower oil prices mean slower US growth," Shepherdson wrote.
2.Trade truce: Presisdent Donald Trump and President Xi Jinping, the leaders of the world's two largest economies, agreed to a temporary ceasefire in the trade war between the United States and China.
After the two-and-a-half hour discussion at the G20 summit in Argentina, Trump agreed to maintain the 10% tariffs on $200 billion worth of Chinese goods, and not raise them to 25% "at this time" ahead of a January 1 deadline, according to a White House statement from press secretary Sarah Sanders.
In exchange, China agreed it was willing to purchase a "very substantial" amount of agriculture, energy and other goods from the United States to help reduce the trade imbalance.
Calling the extended meeting "friendly and candid," Chinese State Councilor and Foreign Minister Wang Yi said the two leaders had agreed to open their markets to each other and to step up negotiations toward elimination of all additional tariffs.
Some analysts warn that the truce could be short-lived "In short, this was not a breakthrough on substance, but a framework to continue talks. We have long warned of the risk that such a general agreement could break down," Eurasia Group said.
3. Jobs numbers: Will November be another strong month for adding jobs? We'll find out on Friday when the Bureau of Labor Statistics releases new numbers for last month.
In October, the US economy added 250,000 jobs in October, which significantly exceeded expectations. The unemployment rate remained at 3.7%, a 49-year low. Hispanic unemployment reached its lowest rate ever, at 4.4%.
5. Retail earnings: Some stores are reporting earnings this week including Dollar General (DG), Restoration Hardware (RH), and Ulta (ULTA).
It's been a strong year for Dollar General: the stock is up nearly 19% for the year. CEO Todd Vasos said on its last earnings call that despite the strong economy, weak wage growth has attracted more shoppers that live paycheck-to-paycheck.
6. Coming this week:
Monday — US auto sales
Wednesday — OPEC meeting; US financial markets closed for national day of mourning in honor of former President George H.W. Bush
Thursday — Kroger (KR), Ulta (ULTA) and Broadcom (AVGO) earnings; Trial for government's appeal of AT&T-Time Warner deal begins
Friday — Jobs numbers
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