When it comes to commodities, you’ll usually find a set of countervailing forces that keep prices at an equilibrium. Yet when it comes to oil, all of the factors behind price swings are heading in the same direction.  As oil prices head lower yet, investors will feel both pain and gain — depending on the make-up of their portfolios.

A Perfect Storm
For much of the past year, a barrel of West Texas Intermediate Crude fetched around $100 a barrel on the spot market. Yet since late July, a series of factors have conspired to push prices lower:

— A rally in the dollar, which tends to push all commodity prices lower.

— A further slowing in the European, Japanese and Chinese economies, which crimps demand.

— A surge in output in Libya to 800,000 barrels a day, up from 240,000 barrels a day in June amid civil war skirmishes near key oil installations.

— An oil production surge in Russia, which is back at peak post-Soviet era levels. 

— A rapidly rising output in Kurdistan as new key oil installations come on line.

— OPEC’s recent inability to curtail production as much as the market had hoped, leading to talk that this cartel may be weakening as market share becomes more important than pricing discipline.

Of course, the elephant in the room is the United States, which is single-handedly disrupting the global supply and demand trends on a massive scale. U.S. oil production has already surged from five million barrels a day in 2008 to 8.5 million barrels a day in August 2014, according to the Energy Information Administration. The more we produce, the less oil we import. Analysts at Citigroup note that oil imports are now nine million barrels per day lower than they were in 2007. It’s important to note that some of the reduction is due to a drop in consumption as we now drive more fuel-efficient cars.

#-ad_banner-#Foreign Affairs magazine was ahead of the curve, anticipating the current events in the oil market back in its May/June 2014 issue. The issue led off with a piece by Edward Morse, global head of commodities at Citigroup, who noted that “U.S. oil production could reach 12 million or more barrels per day or more in a few years and be sustained there for a very long time.” Morse thinks we’re headed for an era of $70-to-$90 oil over the long-term, a process which appears to have begun unfolding in recent weeks.

Before we focus on the winners in such a scenario, let’s look at the losers.

Falling oil prices begin to make major exploration projects economically infeasible. Domestically-produced oil in shale formations is fairly low cost. Citi’s Morse thinks most domestic wells will remain profitable as long as the spot market stays above $50. Some foreign producers, such as Saudi Arabia, also have low production costs and will simply see their oil revenues diminish, but not disappear.

Yet many other regions, either offshore or in remote inland regions, are very expensive to develop. And if oil moves below $80, then you’ll start to hear about canceled projects. That’s a tough backdrop for oil services companies such as Schlumberger Ltd (NYSE: SLB), Halliburton Co. (NYSE: HAL), Weatherford International Plc (NYSE: WFT) and many others.

Companies that lease and operate offshore oil rigs, such as Transocean Ltd (NYSE: RIG) and Diamond Offshore Drilling, Inc. (NYSE: DO) are already seeing an industry slowdown, and it may only get worse in coming quarters. Industry leader Schlumberger is a cautionary bellwether. Shares have pulled back in recent months to below $100, but they stood below $40 back in 2007, the last time this sector sharply slowed.

Notably, Schlumberger’s 2015 profit forecasts have barely budged over the past 90 days, even as oil price stumble. Management is likely to dampen 2015 expectations when quarterly results are released later this month.  More broadly, any company that is dependent on either oil prices or oil drilling activity — especially offshore — may be poised for downward estimate revisions.

The Upside
Of course a slump in crude oil brings a wealth of benefits. For starters, consumers will soon see gasoline prices move to multi-year lows, providing spending power as we head into the holiday shopping season.  The Energy Information Administration looked at this topic earlier this year, when oil was trading at $100 a barrel, and concluded that a move to $70 oil by the end of the decade would save U.S. households roughly $30 billion annually. They add that gasoline costs could drop, from 5% of total disposable income today to 3% by then.

Of course, airlines would also be a huge beneficiary of lower oil prices. Jet fuel prices have already dropped 7% from a month ago, according to International Air Transport Association and could drop further from here. Fuel is the second-largest expense for airlines, behind labor costs.

Beyond the issue of oil prices themselves, the growth in domestic output is altering the U.S. economy in another powerful way. In, 2011, the United States ran a $354 billion petroleum trade deficit. In a few years, that figure appears set to move into surplus. More than one million Americans are now working in the U.S. energy sector, providing an economic lift there as well.

Risks to Consider: The biggest factors behind a potential rebound in China is accelerating demand in China — which led to the 2008 “SuperSpike” in oil prices — or military conflict.

Action to Take –> For several years, we’ve been reading about the United States’ rising oil production. Now we’re feeling the impact. Our growing supply is altering the equilibrium in global markets and when you consider that the United States, Russia and other countries aim to produce even more oil in coming years, oil’s move below $80 a barrel becomes increasingly likely. Shares prices have only just begun to respond to this new reality, and you need to scrub your portfolio of any companies that stand to lose from the changing energy industry dynamics.

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