In 2020, the U.S. became a net exporter of crude oil and petroleum products. Economic principles suggest that as a net exporter, rising prices for goods that are net exported should positively impact U.S. GDP. In other words, higher oil prices benefit the U.S. economy.

In 2016, Ben Bernanke, former Chairman of the Federal Reserve, published an economic analysis of oil prices and the U.S. economy. Bernanke observed that stocks and oil prices often move together, even during supply shocks unrelated to demand growth, indicating a positive correlation between oil prices and economic output. Since the time of Bernanke’s observation, the U.S. has significantly improved its petroleum trade balance, which should strengthen that correlation.

When a country is a net exporter of a product, higher prices for that product mean more profits for the local economy, which boosts economic activity, encourages investment, and increases government tax revenues—key drivers of GDP growth and a healthy economy. The U.S. is net exporting an average of 2.3 million barrels per day of crude oil and petroleum products in 2024 per the EIA, continuing a trend that began with the shale revolution in 2008.

The economic impact of higher oil prices is admittedly complex. When oil prices rise, consumers face higher gasoline prices at the pump, reducing their disposable income available to spend on other goods and services. Additionally, higher oil prices lead to higher business operating costs, which are often passed on to consumers, as well as higher prices of other goods that incorporate petroleum products. However, fuel efficiency gains, EV penetration, online shopping, and remote work have muted the negative economic effects of higher oil prices. U.S. consumers and businesses now consume less gasoline per capita and feel less of a pinch when oil prices rise.

Oil prices have fallen by ~25% since the shale revolution gained momentum in 2008, while housing and food costs have risen by 38% and 51%, respectively. As a result, U.S. consumer spending on gasoline as a share of total expenditure has decreased by 36%, falling to 2.5% in 2023, compared to 17.8% for housing and 7.7% for groceries. This leaves significant room for oil prices to rise without heavily impacting consumers, as gasoline now represents a much smaller portion of household budgets.

Considering the positive effects of higher oil prices, as the world’s largest producer of oil and petroleum products, the U.S. sees significant domestic investment and job creation when oil prices rise. This correlation has held historically, though it has weakened in recent years. Our analysis shows that the sector is currently underinvested, and that higher prices would spur increased investment and job creation, more than offsetting potential consumption losses caused by higher prices.

Looking back at Bernanke’s analysis, if higher oil prices were positively correlated with higher U.S. GDP in the 2011-2016 period, then this effect is surely amplified in today’s economic landscape, now that the U.S. is a significant net exporter of petroleum products. As global demand for oil and petroleum products continues to rise, the world may increasingly rely on U.S. oil. This could result in higher production and prices that would significantly benefit the U.S. economy.

Important Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment adviser capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC and CSA filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication and are subject to change without notice.