Oil Prices In Focus

According to the U.S. Energy Information Administration (EIA), the United States has maintained its position as a net exporter of petroleum products since 2020. In 2024, U.S. exports averaged just under 11 million barrels per day, compared with imports of about 8.4 million barrels per day, marking the fifth consecutive year the U.S. has held net exporter status.

This shift reflects stronger domestic production and the growing role of refined petroleum products in global markets. As the United States expands its export presence, the domestic economy has become less vulnerable to the oil price shocks that historically weighed on economic growth.

Energy Dependence Across Major Economies

Globally, not all advanced economies share this position. Japan remains highly exposed to oil market volatility, relying on imports for more than 90% of its crude oil, with about 88% sourced from the Middle East. This dependence increases vulnerability when geopolitical tensions or supply disruptions push prices higher.
A weaker yen also intensifies the impact, raising the cost of imported energy. The yen has declined more than 4.5% against the U.S. dollar since mid February.

Among the Group of Seven (G7) economies, only the United States and Canada are net exporters of petroleum products. Japan, along with Germany, France, Italy, and the United Kingdom, remains a net importer and is therefore more sensitive to global price increases.

In this environment, the United States benefits from a partial buffer against oil shocks, while Japan faces greater exposure as global energy markets fluctuate.

The Transportation Sector

Over the past several decades, U.S. oil demand has shifted significantly toward the transportation sector. In the 1950s, transportation accounted for about 52% of total oil use; by 2024, that share had risen to 67%, reflecting growth in vehicles, freight, and air travel.

At the same time, residential oil consumption has declined sharply, falling from about 10% in the 1950s to roughly 3% in 2024 as households moved toward natural gas, electricity, and more efficient heating.

These changes reflect how oil use has become increasingly concentrated in transportation while other sectors rely less on petroleum. This shift may help explain why markets have remained relatively steady despite higher oil prices and disruptions in the Strait of Hormuz, as the U.S. economy is less dependent on oil than in the past.

Risks to the Economic Outlook

The most immediate risk to the economic outlook is an escalation of conflict in the Middle East and its potential impact on global logistics, commodity prices, and supply chains. The magnitude and duration of any disruption will matter most. Oil prices would need to remain elevated for several weeks and rise above roughly $140 per barrel to significantly change the broader economic outlook.

Another area to watch is the labor market. Job growth has begun to slow while unemployment remains relatively low. This combination suggests demand for workers is softening. As a result, we expect job growth to continue moderating, with average monthly gains in 2026 potentially around 50,000.

Inflation is also an important factor. LPL Research expects Personal Consumption Expenditures inflation to move toward approximately 2.2% by December 2026, although the path may be uneven, especially if energy prices remain elevated or supply chains are disrupted. If inflation rises in the near-term, the Federal Reserve may hold interest rates steady for several meetings before likely implementing two rate cuts later this year.

What This Means for Investors

While geopolitical events can create short-term volatility, history shows that markets tend to absorb these shocks over time. Energy price spikes typically need to be large and sustained to meaningfully alter economic growth or long-term market trends.

The shift toward stronger domestic energy production, combined with a more diversified global economy, provides some resilience against potential disruptions.

Our team continues to closely monitor developments in the Middle East to determine the potential impact on the energy sector, broader equity markets, and the path for interest rates.

If you have specific questions or would like to discuss your own investment strategy or financial planning needs, we welcome you to contact us to set-up a time to discuss further.

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