Trump States Are The Biggest Beneficiaries Of Higher Oil Prices

On the subject of oil prices, President Trump seems firmly stuck with a 2005 mindset, when the U.S. was the largest oil importer in the world. But times have changed.

In a couple of recent columns, I have highlighted President Trump’s apparent blind spot when it comes to oil prices.

His position would have been understandable a dozen years ago, when net imports of oil into the U.S. had reached 14 million barrels per day (BPD). At just $50 a barrel, that’s over $250 billion a year that was flowing out of the U.S. and into countries like Saudi Arabia, Russia, and Venezuela.

But today, it’s a different ballgame. As covered in the previous article, net imports of crude oil and finished products are transitioning into net exports. That means what was once a huge outflow of money from the U.S. has the potential to become an inflow of money — assuming U.S. oil production continues to grow.

What’s the best way to achieve that goal? By maintaining oil prices that are high enough to justify significant capital outlays by oil companies. Low oil prices have the opposite impact, and push the U.S. away from energy independence.

Consider for a moment what happens when oil prices rise. 1). Investment in U.S. oil production rises; 2). Alternatives like ethanol become more cost-competitive with oil; and 3). Consumers start prioritizing fuel efficiency. Each of these factors improves the prospects for U.S. energy independence.

Further, consider that most of the states that benefit from high oil prices are states that voted for President Trump. There are the major oil-producers like Texas, Oklahoma, North Dakota, Alaska, and Wyoming. Then there are the major renewable fuel producers like Iowa, Nebraska, Indiana, and South Dakota. All of these states benefit from higher oil prices.

There are a handful of exceptions among the major oil producers that voted against Trump — like California and Colorado. But California consumes more oil than they produce. Hence, California, which represents Trump’s highest electoral vote loss of any state, is more likely to suffer harm from higher oil prices.