Today, Goldman Sachs analyst Kamakshya Trivedi, weighed in on the global macro implications of this phenomenon in a note titled: The shale revolution is changing the global energy landscape.
The note actually goes further, talking about how the entire economic landscape could potentially change.
The main impact, they write, is that oil prices will no longer prove a brake on growth:
…shifts in production are gradually loosening the oil price constraint that has been a persistent feature of the global economy. If global demand growth can recover, the risks that it will be choked off by rising oil prices are receding.
This will produce a knock-on effect for household incomes in the West, while blindsiding petro-states:
The drag on household incomes in the developed world from this source should end.
The flipside of the improving terms of trade for these consumers, of course, is a less friendly picture for producers and producing countries, where the sustainability of spending based on sustained high oil prices may come under more scrutiny.
Meanwhile, central banks will be able to shift their focus from containing headline inflation:
Rising energy prices have affected core inflation measures to a degree, influencing the inflation outlook even for central banks, like the Federal Reserve, that have focused more on underlying inflation measures. As a result, lower ongoing energy inflation means that monetary policy may be easier on average than it otherwise would have been.
Finally, here in the U.S., they estimate production will further equalise our trade balance by an amount equal to 1.2% of GDP:
The lion’s share of this would come directly from improving net energy exports, similar to the forecast increase of $136bn for net imports from our Energy team over this period, with a smaller increase coming from improved competitiveness of US manufacturers.
They conclude by depicting just how truly tectonic America’s shale story can be — the third-largest on record:
Photo: Goldman Sachs
But with one key caveat: ” scaled relative to a $15trn US economy, the impacts look a lot smaller.”