The falls in global oil prices over the last year or are fundamentally a reaction to oversupply in global markets: as US new oil supply comes on board, the Organisation of the Petroleum Exporting Countries puts the squeeze on profitability of new sources of supply by refusing to cut production, traditional suppliers either add to production (eg, Iran) and others maximise production to add to their hard currency reserves (eg, Russia).
Some of the recent fall to around $US30 per barrel may be related to fears of reduced demand - notably in China. But it's worth noting that the Chinese economy did not collapse over in the first few weeks of   January - unlike its equity markets. China is in transition from an economy driven by industrial production and construction activity to one driven by the tertiary sector (consumption and other services). Clearly the Chinese economy is not crashing, though it might feel like it for Australian commodity producers. 
One might fret that demand is about to crunch, but equity market concerns do not necessarily equal real economy outcomes.
In any case, on a global basis, lower oil prices in traditional economic models are net positive for global growth - albeit with very mixed effects by region. For example, some of the best-known global econometric models suggest that were oil prices to remain permanently around $US30 per barrel, global GDP might, after a year or two, be around 0.4 per cent higher - with much larger positive impacts for economies highly exposed to commodity prices such as China (0.8 per cent) and Japan (0.7 per cent). Yes, the results are very negative in OPEC and Russia, and mixed for Australia and the US.
In Australia the outcome of a sagging oil price is probably positive for growth and will result in lower inflation. The latter might also increase the risk of a further boost to growth via rate cuts. But lower oil prices will be especially punishing on liquefied natural gas export profits - the big new income earner for Australia - because of the link between long-term LNG contracts and oil prices. And, given that mechanism, falling oil prices will provide substantial headwinds to government revenues.
Two other questions are important in the Australian case. First, are falling oil prices indicative of further falls in broader commodity prices? If yes, the negative impacts via the terms of trade will be much larger. Second, will the falls in $US commodity prices be offset by further falls in the Australian dollar?
Our forecasts see the $A falling a touch further in coming months - to around US67Â¢ before recovering to around US70Â¢ later this year. We also see oil and iron ore around the $US40 mark per unit by year end. But if oil were to remain around its current levels, and the Aussie behaves largely as we expect, what might it mean?
From the consumer's perspective a fall to $US30 a barrel fully passed through (and not offset by lower currency and/or wider margins) should see petrol fall from around $1.20 a litre to, say, 98Â¢. Keep an eye on bowsers. Some have cut but not all. If the lower cost is passed on, my internal modelling suggests a net gain to consumption of around 0.4 per cent per annum (around a quarter of a point to GDP). It would also see lower headline CPI increases of around 0.6 per cent per annum but much lower core inflation readings - reflecting lower indirect effects on production costs and improved activity impacts.
A lower oil price - by reducing costs of production - would also improve profitability across the broader economy - and importantly, in the service sectors where much of our recent growth in activity and employment has been based. This might help non-mining investment outcomes, at the margin. After all, the cost of production of iron ore is heavily influenced by transportation costs (where oil costs are more important than the broader economy). While unlikely to contribute anything in terms of added iron ore investment, lower oil prices will be marginally helpful to iron ore profitability.
On the other hand, the negative impact on the profitability of the massive ramp-up in LNG exports would be withering. Remember most of long-term LNG contracts were locked in around $US80 or above. Even allowing for Australian dollar depreciation, current oil prices imply an LNG effective price of around $5 to $6 per gigajoule - less than half the implied price of recent years. In short, very poor profitability and little chance of much tax revenue increases for the government from what will be Australia's second-largest mining export. Don't forget the government's mid-year economic forecast projected oil at $US40 a barrel - so this implies a weaker indirect tax take.
It's true the recent volatility on global equity markets will have lowered consumer confidence and lowered wealth. At current levels, however, these impacts will be significantly outweighed by the direct effects on consumer and most businesses' cash flows. Here it will be interesting to get the next read on business confidence from NAB's monthly business survey, later this month.
By necessity there are many ifs and buts in the above (and that also applies to analysis of recent bearishness in markets and especially some ultra-bearish commentators where "shades of grey" have been notably absent). A more reasonable assessment of the outlook for Australia from lower oil prices is in my opinion at least balanced for Australia. Certainly we're not in the "all ruined" camp.