A $3 trillion shift for in the world economy

Interesting take from Francisco Blanch at Bank of America Merrill Lynch:

“will push back $3 trillion a year from oil producers to global consumers, setting the stage for one of the largest transfers of wealth in human history.”

The fall in oil prices has been estimated to give about 1.2 in consumer spending back for every $.01 the price falls. The average price for the last few years across the U.S. has been ~$3.50 a gallon. If oil prices stay at $1.80, we are looking at shift of over $200bn from oil spending to consumers pocket books.

This ends up to be about $660 per person in the United States. It is easy to imagine many families spending $50 less per week on gasoline directly, and then the imbedded.

The logical question to ask is “Is why is there GDP weakness given this huge shift?”

A few parts of the answer:

  1. It takes time for the economy to figure out what is happening when shifts of this size occur.
  2. There is additional uncertainty in all economic outcomes when shift of this size occur, so smart business owners react cautiously

Even something which appears to be an unambiguous good – every consumer on the planet faces cheaper prices – still can inject uncertainty into business decisions. Uncertainty reduces investment, as we have seen over and over again.



Expert in business development, product development, and direct marketing. Developed strategic sales plans, product innovations, and business plans for multiple companies. Conceived the patent pending Spot Equivalent Futures (SEF) mechanism, which allows true replication of spot and swap like products in the futures space.

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2 Comments on "A $3 trillion shift for in the world economy"

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1 year 4 months ago

And in the case of young upcoming families like my sons I imagine much of what he saves on gas will go to paying other debts, like school debts or his auto, back faster.

As Phil said, most of us know that we haven’t seen the end of high oil prices. This is temporary

1 year 4 months ago

This is exactly right. Even though the gas station near me has just posted regular unleaded at <$2/gal, I'm still budgeting for gas at $3+/gal because you don't know if/when prices could shoot back up. I can only imagine businesses are doing the same thing.

After all, if prices were to rise as fast as they have fallen recently, I'd be in a real bind.