A fall in oil prices should cause a reduction in transport and fuel costs for firms. Consumers who will also benefit from the lower prices of transport and fuel. The lower oil prices will effectively increase their disposable income and enable them to spend more on other goods

Because oil is the most traded commodity and has a significant bearing on global transport costs, it should lead to inflation and can lead to higher rates of economic growth.

However, sometimes oil prices crash because there are fears of an economic recession. In this case, falling oil prices are not sufficient to increase economic growth because other factors keep growth low. Also, if oil prices fall sufficiently, it can cause some oil firms to go out of business and this causes a rise in bad debts. The crash in oil prices in 2020 is indicative of the economic recession and prices have fallen so far that many oil firms will be forced out of business, causing job losses and falling investment.

Also, falling oil prices will have differing effects depending on the country. Oil importing countries (e.g. Germany, Japan, India) will generally benefit from oil lower prices, but developing economies who rely on oil exports (e.g. Russia, Venezuela) could see a significant fall in export revenue.

• How do Oil Prices affect the Economy?
• What drives crude oil prices?
• Which Countries Benefit from low Oil Prices?
• Is the Current falling World Oil Prices good or bad?
• What are three things that affect Oil Prices Today?
• How does Disasters Affect Oil Prices?

How do Oil Prices affect the Economy?

The oil price fall in March-April 2020 has pushed oil to its lowest prices for many years. For a brief time in April 2020, Oil prices for WTI fell to negative prices.

Read Also: How Gas Price Affects your Wallet

Usually, a fall in oil prices would be greeted by consumers and firms due to the lower prices and costs. However, this fall is due to expectations of a sharp drop in travel and economic recession from the coronavirus. Therefore, there is little expectation that the lower oil prices will have any positive economic effect. If people cut back on travel, cheaper petrol doesn’t make much difference. If people see a fall in income because they are out of work, cheaper oil prices are only a small compensation.

Oil is a commodity used not just in petrol and diesel but many other products, such as

• Motor oil, plastics, clothes, solar panels, floor wax, ink, bearing grease and other 40 everyday products (Products made from petroleum)
• Therefore, many goods will see a marginal fall in cost of production when oil prices fall.

Impact of lower oil prices on oil consumers

Lower oil prices help to reduce the cost of living. In particular, if a household owns a car or uses other forms of transport reliant on oil. To a lesser extent, all goods should become cheaper due to lower transport costs.

This fall in the cost of living is especially important if real wage growth is low which has been the case in recent years. A fall in oil prices is effectively like a free tax cut. In theory, the fall in oil prices could lead to higher spending on other goods and services and add to real GDP.

Problem of Bad debts

In 2020, oil prices have fallen so far that the price of oil is selling for a lower price than the cost price for producers in US and Russia. Saudi Arabia has pushed the price below $30. But, this damages many oil firms have who borrowed to invest in new oil fields. This could lead to firms closing down and going bust.

Macroeconomic impact of falling oil prices

1. Lower inflation
2. Higher output

3. Balance of payments

Oil importers will benefit from a falling oil price because the value of their oil imports will drop. This will reduce the current account deficit of oil importers; this is important for a country like India who imports 75% of oil consumption and currently has a large current account deficit.

However, for oil exporters, a falling oil price will do the opposite reducing the value of their exports and causing lower trade surplus. The UK is currently a small net importer of oil, so will have a limited impact on UK current account.

Oil exporters

For oil exporters, a fall in oil price is damaging to the economy. Many oil-exporting countries rely on tax revenue from oil production to fund government spending. For example, Russia gains 70% of all tax revenues from oil and gas.

Falling oil prices will lead to a government budget deficit, and will require either higher taxes or government spending cuts. Other oil exporters like Venezuela have relied in the past on oil revenues to fund generous social spending. A fall in oil prices could lead to a significant budget deficit and social problems.

Other oil exporters, such as Saudi Arabia and UAE have built up substantial foreign currency reserves; they can afford temporary falls in oil prices because they have substantial reserves.

Other economic impacts of lower oil prices

Reduced profitability for alternative energy sources. In recent years, there has been an incentive to invest in renewable energy and electric cars. A prolonged fall in oil prices will reduce this incentive and encourage firms and consumers to stick with oil.

Falling oil prices could delay investment into alternative ‘greener’ forms of energy, such as electric cars, and this could have negative consequences

Long-term falling oil prices could reverse the recent decline in-car use, leading to a steady increase in traffic congestion and environmental costs of petrol use.

What drives crude oil prices?

Oil prices and the economy are inextricably linked. Global GDP growth lifts oil demand as industrial production expands, and higher demand, in turn, lifts prices. With the International Monetary Fund projecting a 4.9 per cent decline in global GDP in 2020 because of the impact of the Covid-19 pandemic in halting economic activity, oil demand is also set to be lower this year.

The International Energy Agency (IEA) expects that global oil demand will be a record 9.3 million barrels per day lower in 2020 than it was in 2019, as lockdowns to slow the spread of the pandemic have hit road transportation, aviation and manufacturing.

That fall in demand contributed to the plunge in crude oil prices from the start of the year to the negative turn in April.

Supply is also a major price driver. Oil prices were already falling before the pandemic hit, as two of the world’s largest producers – Saudi Arabia and Russia – engaged in a price war to secure market share. The members of the Organization of the Petroleum Exporting Countries (OPEC) and other major producers have since agreed several times to cut production in an attempt to support prices.

A shift in the global supply dynamic has fundamentally changed the pricing on the oil market. Over the years, the global benchmark Brent crude oil market has established a widening premium to the US benchmark West Texas Intermediate (WTI) market, even though WTI crude is lighter and sweeter than Brent, which describes its low density and low sulphur content.

North Sea oil fields – from which Brent crude is extracted – have become depleted while North American production from shale formations and oil sands has expanded rapidly, exacerbating oversupply in the US market.

Weather is another key driver on the supply side, as conditions can disrupt production and drive up prices, such as when Hurricane Katrina reduced US output in 2005 and pushed up prices to record highs.

The amount of oil held in storage can also affect prices, as it indicates the availability of supply on the market; storage fills up when the market is oversupplied and is drawn down when supply is tight.

Which Countries Benefit from low Oil Prices?

Those countries which are net exporters are having their economies hit by the low oil price at the worst possible time while those which are importers are unable to take advantage of it due to the travel restrictions, no matter how cheap it gets. Around the world, oil tankers are sitting idle as producers struggle to contain supply. 

Legg Mason emerging markets portfolio manager, Alistair Reynolds, said: “If something goes on sale, you buy it at a bargain but you’ll only buy however you have much room for, you don’t want to be re-organising the house. It’s the same for oil, it may be cheap but if there is nowhere to store it then the price won’t matter”. 

There are two segments of emerging markets most affected by the change; those which are oil producers such as Saudi Arabia, Brazil and Russia and those such as China and India which are oil importers.

Oil exporters 

While the US is the largest oil producer overall at more than 16.2% thanks to its shale production, emerging markets producers include Saudi Arabia (13%), Russia (12.1%) and Brazil (2.8%).

For Russia and Saudi Arabia, managers said the countries would largely be able to withstand the fallout. Saudi Arabia requires oil to be priced at US$88 per barrel to achieve breakeven while Russia, where oil makes up just half of exports compared to 80% of Saudi Arabia’s exports, only needs a price of US$42 per barrel. 

“For Saudi Arabia and Russia, these countries and their oil-producing companies can cope with the pressure. Oil makes up 80% of Saudi Arabia’s exports and they would need oil to be at US$88 per barrel to balance what they are spending on population. We are nowhere close to that so they will have a fiscal deficit but it won’t be the end of the world for them, they are exposed but are in a better position,” Reynolds said.

“In Russia, they are more diversified and less reliant on oil than Saudi Arabia and have a low level of debt so they are in a good position to survive.”

Alastair Way, emerging markets portfolio manager at Aviva Investors, said his fund had exposure to Russian oil company Lukoil and he felt more comfortable having exposure to the energy sector now than he did six months ago.

“We have exposure to Lukoil as this looks resilient and the cost of production is low. There are political risks we worry about in Russia but it has a resilient economy and one which is geared to the oil price.”

However, for Brazil, it already had significant economic problems and a large fiscal deficit so the price crash would exacerbate these existing problems at the worst possible time. As well as oil, the price of other commodities such as iron ore – which is Brazil’s largest export – copper and ethanol had also fallen.

Rohit Chopra, portfolio manager and analyst in Lazard’s emerging markets equity team, said: “For energy exporters, the collapse in oil prices may compound the fiscal costs and emergency measures enacted in response to the pandemic. 

“[For Brazil] the low oil price could result in lower 2020 gross domestic product (GDP) growth estimates, lower oil prices and a series of emergency spending measures are likely to result in a revenue shortfall and a higher fiscal deficit.”

Reynolds, whose Legg Mason emerging markets fund had 3.9% invested in Brazil, said: “The last thing Brazil needs is an economic slowdown combined with weakness in oil markets. Brazil already has a fiscal deficit even when oil was at US$60 per barrel. It is reliant on oil for taxation so I expect the fiscal deficit will balloon to 10% of GDP.

“Petrobras also hold a lot of debt unlike the Saudi or Russian companies so they could do without this. Petrobras has been the emerging market company to avoid in funds lately.”

Nick Price, manager of the Fidelity Emerging Markets fund which holds 4.5% in Brazil, said: “The Brazilian market sold off sharply on the back of the twin shock of the pandemic and lower pricing environment for commodities. 

“No exposure to Petrobras boosted returns, as oil prices slumped on the back of the OPEC+ breakdown and lower demand.”

It was not just the oil price either that was troubling the country, Brazil has been dealing with its own domestic problems under President Jair Bolsonaro who is trying to implement reforms. These include reforming the pension system, privatising state-controlled companies, reducing bureaucracy, simplifying the tax system and restructuring public sector wages. 

It is also one of the worst-faring nations in terms of COVID-19 cases with more than 363,000 cases and 22,000 deaths, the third-highest in the world and two health ministers quit within a month after clashing with the president.

This highlighted the challenges of investing in emerging markets as the countries can often be more politically turbulent than developed markets, have volatile currencies and less equipped to cope in a crisis such as COVID-19. There is also less transparency meaning it can be hard to get a hold on accurate figures regarding their finances. 

Chopra said: “Brazil’s main challenges centre around the federal Government’s response to the pandemic as well as renewed political uncertainty following the resignation of Sergio Moro, the former justice minister and speculation that the current economy minister Paulo Guedes may do the same.

“Though 2019’s approval of pension reform was encouraging for the potential savings, debt-to-GDP trajectory and economic growth prospects for the country, the immediate priorities are emergency spending measures and unconventional monetary policies to support the Brazilian economy during the pandemic.”

The Ironbark Copper Rock Emerging Market Opportunities fund, which has 11.7% allocated to Latin and South America, said six of its worst 10 detractors from performance during March were Brazilian companies. 

“Brazil had been performing strongly on the back of the Government pushing forward much-needed reforms. However, recent actions by Congress unwound some of that progress. Those steps backward, combined with the risks related to COVID-19, have significantly impacted the currency and equity markets,” it said in its most recent factsheet.

Way said: “The departure of the health minister has shaken investor confidence in Brazil, they need politicians to be doing a good job right now. Brazil was slow to go into lockdown and has handled it worse than other emerging markets so is one of the least attractive emerging market countries at the moment.

“We have some exposure to Brazil but are defensively positioned and have limited exposure to those companies which are exposed to the domestic economy.”

However, there was a silver lining as PGIM Latin American economist Francisco Campos-Ortiz, thought the dual shocks might prompt Brazil to address its economic problems.

“The outlook for Brazil looks challenging on both the political and economic side, they will have a deep recession. 

“The debt to GDP ratio is 90% which is high for an emerging market and that has consequences for its monetary policy so we expect to see rate cuts to their lower bound. 

“The relationship between the legislative and the judicial branch has been deteriorating and this situation has worsened it. But we can’t rule out that the situation reverses and cooler heads will prevail. A political or economic crisis is not in anyone’s interest and maybe a silver lining will be that there may be an increased sense of urgency to address the country’s economic vulnerabilities, fiscal position and structural growth problems.”

Oil importers

For those countries who are net importers of oil, at first glance the lower price looks to be a benefit for them. The largest emerging market net importers of oil are China (12.5% of overall oil imports), India (9.7%) and South Korea (6.6%). 

Conrad Saldanha, portfolio manager at Neuberger Berman, said: “The governments that import oil such as China, Korea, India and Indonesia will benefit from the oil decline through low inflation, better current accounts and better fiscal deficit so that’s a silver lining”.

But the restrictions on travel plus the lack of manufacturing in factories mean there is minimal need for oil right now. This means what would ordinarily be a boost to these countries’ economies, is instead having little impact. 

The only countries currently able to benefit from the low price were China and South Korea as these countries had slowly begun opening up again. 

“The low price has fallen on deaf ears this year,” said Reynolds. “China and South Korea are the only two countries which are up and running again and they are net importers of oil so they can take advantage. 

“But in China, as prices tumbled, they have not fed that price decline through to consumers as the Government is keeping the benefit in a reserve fund to fund other projects like emission reductions and alternative fuels rather than passing it onto consumers.”

Asked what would happen when other countries began to re-open up, he said the production cuts which came into force in May would mean the price would likely have recovered by the time most countries were consuming at full capacity.

“Oil demand will spike up in the second half of the year but oil will cope very easily as there is so much supply of it and we are running out of places to put it.

“But now every country has agreed to cuts, it will take some time for that storage to be drawn down and it could be another 12 months before oil production returns to normal levels. As demand recovers, the 10% production cut will be enough to balance the market.”

Way said: “The extent to which life goes back to normal will be a key issue. With the shift to working from home, will people still go back to an office everyday? Will they still use public transport or start to drive more instead? That’s an upside for the oil price although it will be worse for the environment. 

“As the first one out of lockdown, China is a role model for other countries and the recovery there has been sharper than was first expected so could that happen in other parts of the world?”

Is the Current falling World Oil Prices good or bad?

Pippa Stevens at CNBC wrote that “U.S. West Texas Intermediate crude and international benchmark Brent crude are both pacing for their worst day since 1991.”

Why worst? Implicit in Stevens’s statement is the idea that low oil prices are bad. All other things equal, of course, low oil prices are bad for oil producers. But also, all other things equal, low oil prices are good for oil users. And the latter includes all of us. How do we assess whether the net effect of the plunge in oil prices is good or bad?

We have to look at why they fell suddenly. We pretty much know why: a temporary collapse of the Organization of Petroleum Exporting Countries (OPEC.) For that reason, the drop in oil prices over the weekend is good. It’s roughly a wash for the U.S. economy and it’s good for the overall world economy.

When economists say that demand decreases, we mean something very specific—that at any given price, the amount demanded decreases. There are two main ways that can happen: a slowing of the world economy or an increase in the supply of a substitute.

If the world economy slows—and it certainly looks as if it has slowed, or will, due to the COVID-19 virus and people’s reaction to it—the demand for oil will fall. With a given supply, that will cause the price of oil to fall. The fall in the price of oil is not bad per se; rather, it’s a consequence of something bad, namely, the slowing of the world economy. And it certainly appears that a fall in demand due to a slowing economy caused prices to fall before last weekend. But it’s unlikely that there was a sudden fall in demand last weekend. We have to look elsewhere.  

The other possible cause of a fall in the demand for oil is an increase in the supply of a substitute for oil. If, for example, solar or nuclear energy became more competitive, the demand for oil would fall. In that case, the fall in oil’s price would be a sign of something good happening in the economy. Did solar, nuclear, or any other energy source suddenly become more competitive over this weekend? No.  So that’s not it.

How about an increase in supply? If supply increases, then, with a given demand, prices will fall. Notice that I’m using the word “supply” to mean not the quantity supplied, but the whole supply curve. When an economist says that supply increased, he means that at any given price, the quantity supplied has increased.

The whole supply curve has shifted to the right. This sounds wonky and may remind you of an old economics class in which the professor insisted on the distinction between a shift in supply and a movement along a stable supply curve. But here we need a little wonkiness to help us analyze.

But there were no major discoveries of oil or breakthroughs in technology over the weekend that would cause the supply to increase. So that’s not what drove prices down.

There’s one culprit left: a decrease in monopoly power. If buyers and sellers in the stock market think that a major monopolist in the world market has lost market power, the world price of oil will fall. So let’s look more carefully at OPEC to see what went on last weekend.

First, recall that OPEC is a cartel. Government officials of the member countries get together and try to agree on a price. They want a price above what the competitive, non-colluding price would be. To achieve that cartel price, the members must produce an output below the output they would ideally like to produce. Each firm or, more accurately, government (since we’re talking about OPEC) would like to produce more and have every other country produce less.

The members of OPEC meet regularly in Vienna to hash out their differences and try to reach an agreement. This time, though, there was real tension between Saudi Arabia’s desires and those of Russia. OPEC lists its members on its website, and although the Russians attended the latest meeting, and typically attend OPEC meetings, Russia is not, and never has been, an OPEC member.  

Saudi Arabia is the most important OPEC producer; Russia is the most important non-OPEC producer that attends the meeting. This time, the Saudis and the Russians had a big disagreement. The Saudis wanted to slow or stop the price erosion that had happened due to the drop in demand by cutting output: that of OPEC members and that of other countries that attend OPEC meetings but are not members.

The Russians wanted the output cut too but didn’t want to be the ones doing the cutting. As CNBC’s Brian Sullivan put it on Friday, they wanted to have their cake and eat it too. In that respect, the Russians are like the non-Saudi members of OPEC: all of them want the Saudis to cut output. Although the violin I will play for the Saudis’ predicament is very tiny, it is true that they have traditionally been the “swing producer:” the country that sucks it up and reduces output to maintain the price while many other members of the cartel cheat like crazy.

At times, the Saudis have produced as little as 4 million barrels a day to support the price; at other times, they have said the hell with it and have produced as much as 10 million barrels per day.

This time the Saudis said the hell with it. They will produce more and the Russians will produce more. Thus the lower price. And it doesn’t take a whole lot more production to drop the price. The reason is that the demand for oil is inelastic: a one percent increase in output will lead to a ten percent drop in price. So all it takes for a 30 percent drop in price is a three percent increase in output.

Is it bad that the price of oil will drop due to a reduction in monopoly power? No, it’s good. Ever since the fall of 1973, when OPEC raised the world price of oil from $3 per barrel to $11, OPEC has had some monopoly power in the world oil market. This causes the price to be higher than the competitive price would be and we oil users respond by using less oil than we would use at that lower competitive price.

When the monopoly power comes about, not due to innovation or invention, but due to collusion, as with OPEC, economists almost unanimously object to monopoly: it holds output off the market for which consumers would pay an amount greater than the cost of production.

This underproduction causes what economists call a “deadweight loss,” a loss to consumers that is not captured by producers. That’s what OPEC does. In his article on monopoly for The Concise Encyclopedia of Economics, the late Nobel Prize winner and University of Chicago (and Hoover) economist George Stigler laid out the reasoning behind deadweight loss.

So the cut in the price brings the world oil market closer to the competitive price.

Does that mean that the price cut is good for the United States? No. The price cut is good for any country that is a net importer of oil. In recent decades, therefore, the United States would have gained big time from the cut in the world price. The loss to U.S. producers would have been less than the gain to U.S. consumers because we consumers would have gained on every barrel we used and the producers would have lost on the smaller number of barrels they produced.

But something important has happened in the last decade: fracking. In December 2019, the United States became, for the first time since 1949, a net exporter of oil. So the drop in prices is bad for the U.S. economy as a whole: the loss to the producers will exceed the gain to consumers. But it’s only slightly bad because the United States is barely a net exporter.

For the world economy as a whole, then, the drop in oil prices due to demonopolization is a net plus. That should be no more surprising than the fact that the increase in competition in the retail sector is a net plus.

So why has the stock market fallen so much? Part of the reason is, no doubt, the increased panic, possibly justified, about the loss in output due to the Covid-19 virus. You might expect that if the only event affecting the stock market was OPEC’s temporary loss in monopoly power, the losses to industries that produce energy would be only slightly larger than the gain to industries that use energy as an input.

But that ignores the fact that a large percentage of the gain from the drop in price is to final consumers, and most of us consumers don’t sell stock in our wealth. There’s no stock called David Henderson, Inc., for example. So a large part of the gain is not visible on the stock market.

French economist Frederic Bastiat wrote, back in the 1840s, that we should always take account of the unseen as well as the seen. The seen is the stock market losses of energy producers. The unseen is the gain to ultimate consumers.

We don’t know what will happen in the next few months, either with the Covid-19 virus, the world economy, the stock market, or oil prices. As Danish physicist Niels Bohr said, “Prediction is very difficult, especially about the future.” But we should be clear that the drop in oil prices due to OPEC’s loss of pricing power is a gain to the world, and close to a wash for the United States.

What are three things that affect Oil Prices Today?

There are three main factors that commodities traders look at when developing the bids that create oil prices. These are the current supply, future supply, and expected demand.

Current Supply

The current supply is the total world output of oil. OPEC supplies 60% of the world’s oil exports and thus has a controlling say in world oil prices.

Between January 2011 and December 2014, the U.S. shale oil production quintupled from one million to around 4.8 million barrels per day (b/d). This increase in production created an oil glut—which means there is more oil in production than is in demand. The U.S. oil production increase sent the price of imported crude oil down to around $27 per barrel (/b) in February 2016.

By late 2019, shale oil production eclipsed 8 million b/d, and per-barrel oil prices averaged around $58 for the year. Production fell below 7 million b/d by May 2020, but exceeded that amount by July and have remained in that range as of October. Oil prices are averaging around $37/b for 2020.

Future Supply

Access to future supply depends on oil reserves. It includes what’s available in U.S. refineries as well as in the Strategic Petroleum Reserves. These reserves can be accessed very easily to increase oil supply if prices get too high, if natural disasters reduce the flow of oil into the U.S., or if there is otherwise a need for oil, based on criteria in the Energy Policy and Conservation Act of 1975.

Demand

Traders look at world oil demand, particularly from the United States and China. U.S. estimates are provided monthly by the Energy Information Agency. Demand rises during the summer driving season and falls in the winter. To predict demand, forecasts for travel from AAA are used to determine potential gasoline use in the summer, whereas weather forecasts are used in the winter.

How does Disasters Affect Oil Prices?

Natural and man-made disasters can impact oil prices if they are dramatic enough. Recently, pandemics and natural disasters have wreaked havoc on oil prices.

COVID-19 Coronavirus Pandemic

In January 2020, many governments began restricting travel and closing businesses to stem the coronavirus pandemic. Demand for oil began falling. In the first quarter of 2020, oil consumption averaged 94.4 million b/d, down 5.6 million b/d from the prior year.

A drop in demand was worsened by a supply glut. On March 6, Russia announced it would increase production in April. To maintain its market share, OPEC announced it would also increase production.

As storage facilities filled, prices plummeted into negative territory. On April 12, 2020, OPEC and Russia agreed to lower output to support prices. This action still wasn’t enough to convince traders that supply wouldn’t outpace demand, and the price of oil continued downhill.

By April 20, 2020, the price for a barrel of WTI at Cushing in the U.S. had fallen to around -$37. However, prices rebounded quickly and by the first week of June, climbing to $39/b by June 5 and surging to $40 in the last week of July.

Internationally, Brent crude oil prices are expected to remain around $43/b through the end of 2020 and are projected to average $49/b in 2021.

Mississippi River Flooding

In May 2011, the Mississippi River flooding caused at least $2 billion in damage. Commodities traders were concerned the flooding would damage oil refineries—fear of shortages sent gas prices up to $4.02 a gallon by the second week of the month.

Hurricane Katrina

Hurricane Katrina was a Category 5 hurricane that hit Louisiana on Aug. 25, 2005.17 Between August 29 and September 5, the U.S. average price for regular gasoline rose $0.46 to $3.07 per gallon. It was the largest weekly hike in prices on record.

Read Also: How to Revive The Economy Using Agriculture Model

Hurricane Katrina affected 25% of U.S. crude oil production. It shut down between 10% and 15% of refinery capacity for the first few days following the storm. One month later, Hurricane Rita impacted the Gulf states. Combined, the effects of the two storms reduced crude oil refinery inputs 11.7 million b/d during the week that ended September 30. This was the lowest average output since March 1987.

Oil Spills

Surprisingly, oil spills don’t cause higher prices. For example, the Exxon-Valdez oil spill spewed 11 million gallons (262,000 barrels) of oil. Although this had a devastating impact on the Alaskan coastline, it didn’t threaten the world’s oil supply or prices.

The BP oil spill spewed 12 times the oil than the Exxon Valdez did, per barrel. Yet, oil and gas prices barely budged as a result. Why? First, global demand was down thanks to a slow recovery from the 2008 financial crisis.

Second, even though nearly 134 million gallons or 3.2 million barrels of oil spilled, it was over a period of around three months.20 While this is a large amount of oil, it isn’t very much when the percentage of the total oil used by the United States is considered. The United States consumed 7.5 billion barrels in 2019, according to the U.S. Energy Information Administration—a little over 20.5 million b/d or the equivalent of over six BP oil spills.