What’s Not to Like About Cheap Oil? Well ...

“For anyone consuming oil, lower oil prices are a tax cut,” said U.S. Secretary of the Treasury Jacob Lew at the World Economic Forum in Davos on Jan. 21. “It puts more money in people’s pockets. It actually has a positive effect.” Lew was trying to be reassuring, with good reason. The day before, crude prices had dropped to a 12-year low of $26.55 a barrel, down from $107 as recently as mid-2014. The ripple effects in the stock market briefly wiped as much as 565 points off the Dow Jones industrial average. (Oil rallied back to $32 as of Jan. 27.)

Lew’s contention that dramatically cheaper oil is something to cheer about makes a lot of intuitive sense. China, the world’s largest oil importer, has capitalized on lower prices by stockpiling reserves; for all the country’s problems as its growth slows, energy costs aren’t among them. In the U.S., consumer confidence is on the rise. The benefits of the price cut “handily outweigh the negatives,” says Jacob Oubina, senior U.S. economist for RBC Capital Markets. “It’s just a matter of when consumers and businesses adjust to this.”