Say what you will about the geopolitical merits of the Iran nuclear deal: It’s probably going to guarantee your gasoline will be dirt cheap for the foreseeable future. So says the International Energy Agency, which on Tuesday predicted that “unless something changes, the oil market could drown in over-supply” in 2016.
In a way, that’s sort of an understatement; markets have been gagging on hydrocarbons for a while now, as global production has grown way, way faster than demand. The world’s swelling glut of crude has already driven prices down to about $28-to-$29 a barrel this year, which should in turn lead to a bit less drilling—the IEA expects that, outside OPEC, the world is eventually going to pump 600,000 fewer barrels a day. But the agency also writes that “this will inevitably be largely offset by higher production from Iran,” which is promising to immediately jack up its oil output by 500,000 barrels per day now that it’s been freed of sanctions. Assuming the overall oil output ultimately stays roughly steady, the world could find itself producing 1.5 million more barrels of oil per day than it needs in the first half of the year, leading to bigger crude stockpiles and even lower prices.
So, great news for drivers. Terrible for North Dakota and Russia and Venezuela.
This brings up a big question: Is cheap oil actually still a net positive for the U.S.? When prices started plummeting back in 2014, economists expected savings on gasoline would translate into higher consumer spending elsewhere in the economy, thus acting as a minor stimulus. But that upside hasn’t really materialized, as families appear to have been pocketing their savings in the form of, well, savings. Meanwhile, jobs in the oil industry have disappeared as frackers have shuttered rigs. Bankrupt energy companies have also been wreaking havoc on the junk-bond market, which adds the specter of financial instability to this whole mess.
I’d argue that lower oil (and therefore gasoline) prices are good for Americans’ well-being, even if they haven’t been especially great for America’s GDP, since most households are probably grateful for the opportunity to save a bit more cash. If you agree, well, that’s one more point in favor of the Iran deal.