Perspective: Falling Oil Prices

Oil prices fell to multi-year lows through 2014 while bottoming out in dramatic fashion through the end of the year. During this time, talking heads debated the merits of falling oil prices as the markets seemed confused. Although there are slight negatives to low oil prices, it is resoundingly good for the U.S. economy.

Direct Effect

Consumers are king in driving the U.S. Gross Domestic Product and the economy. The simple economics of lower gas prices mean more money in the pockets of Americans which translates into more money to spend. The direct effect is greater spending which helps the U.S. economy, GDP, and drives business. According to a recent article in the Washington Post, “Every day, American motorists are saving $630 million on gasoline compared with what they paid at June (2014) prices, and they would get a $230 billion windfall if prices were to stay this low for a year.” If Congress were to implement tax breaks for this amount, investors would not be able to get money into stocks fast enough. However, the media continues to debate the merits of low oil prices.

Indirect Effect

The indirect effect to the American economy is to businesses. Low oil prices make “widgets” cheaper to produce, store, and transport to the consumer. This raises margins which increases profits which leading to increased employment.


The positive direct and indirect effect of low oil prices on the U.S. economy far outweighs the negative effects of low oil prices. The net result of low oil prices is lower revenue in the energy sector which has the potential to lead to lower profitability and layoffs in the energy sector.

In addition, emerging markets stocks of countries with economies that rely heavily on oil production may also see decreases in net margins.

Kevin McNab

This article is written by Kevin J. McNab. Kevin is President of ACE Wealth Partners, LLC and is a CFP®, ChFC®, and CRPC®. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by ACE Wealth Partners, LLC unless a client service agreement is in place. If you have any questions regarding this Blog Post, please Contact Us. Please read our website DISCLOSURE carefully for additional information.