What Do Lower Oil Prices Mean — and for Whom?

Posted February 11, 2015 at 5:00am

McKinsey offers a “cheat sheet on lower oil prices,” stating: “Oil prices have plunged, helping consumers but worrying energy-reliant countries and companies. Here’s a cheat sheet on what’s happening and its implications.”  

The piece begins: “A little background: over the past seven-plus months, the price of a barrel of oil dropped from $107 to less than $50. This took prices to 2009 levels and surprised just about everyone. Stock markets do not like surprises, and many global indexes have dropped, adding another wrinkle of worry to an already wobbly global economic recovery.”  

The piece offers “good news,” “bad news” and other insights. The conclusion: “A better play than peak oil is to bet on the power of the market and the human ingenuity that propels it. High oil prices encouraged substitution on the demand side, in the form of greater efficiency and other measures. They also encouraged innovation: finding new sources of supply, such as oil sands in Canada and shale in the United States. Basically, when oil prices went up, so did the interest in alternatives and their economic viability. There is no reason on Earth—or under it—to expect that dynamic ever to change.”