Oil prices are dipping heavily, and there are signs of a global supply excess. Saudi Arabia, one of the world’s largest producers, has made an announcement that it will reduce its exports in December. The OPEC alliance, which includes Saudi Arabia, Iraq, Iran, Kuwait, the UAE and Qatar, will likely also reduce production, although no unilateral agreement has yet been made.

Oil prices are key to international markets, including stock investment markets. Consumers can benefit from falling prices as the costs of goods typically decline in tandem.

The Winners and Losers of Oil Price Decline

The oil market is key to the United States economy, and while the nation is a leading producer, a significant amount of oil is imported yearly. Politics and oil prices are closely linked as the government has a responsibility to keep consumer goods and petroleum product prices in line with inflation.

With prices falling, the U.S. as an exporter can suffer, as revenues for energy companies and producers will decrease.

While oil producers will feel the crunch if global prices continue to fall, the short-term benefits to consumers will be significant. Lower transportation costs, lower shipping costs, more affordable plastic-based goods and even lower food costs will all benefit households. The problem is that too much of a good thing can overcook the economy, and in a period of growth like we have today, this has a real risk of leading to a recession.

Stable Price Ranges are Ideal for a Functioning Economy

When international prices are too high, the U.S. government will often urge and even negotiate with foreign producers to find solutions that bring prices down. This keeps consumers happy and keeps GDP at a healthy rate.

When prices are falling too quickly, as they are today, the government will also intervene through negotiations or other forms of political pressure to keep rates at a manageable level.

The move by Saudi Arabia to limit production will help to keep international prices more manageable, and the current price slide could be limited or even stopped. However, with some major producers, such as Russia, making no commitment to lower production and exports, it is difficult to predict exactly how this will play out for consumers and the broader economy.

Even while the Government is ramping down for the year and coming off the tail end of the 2018 elections, investors can expect to see oil become a hot topic in the coming weeks, particularly if large producers can’t reach agreements that will be beneficial to global pricing.