US economy could shrug off oil prices if disruption is briefWednesday, September 18, 2019
DALLAS (AP) — The price of gasoline crept higher after a weekend attack devastated Saudi Arabian oil output, but if the disruption to global supplies is short-lived, the impact on the US economy will probably be modest.
Prices spiked Monday by more than 14 per cent, their biggest single-day jump in years, but retreated yesterday, reversing some of the increase. US oil fell nearly 5 per cent to US$59.96 a barrel, while Brent, the international benchmark, dropped 5.3 per cent to US$65.34.
A gallon of regular in the US stood at US$2.59 yesterday, up three cents from the previous day, according to the American Automobile Association (AAA) auto club. Analysts warned that pump prices could rise as much as 25 cents in the coming weeks, but it all depends on how quickly Saudi Arabia returns to normal production.
Yesterday's reversal in prices came as Saudi Arabia's energy minister reported that 50 per cent of the production cut by the attack had been restored. Prince Abdulaziz bin Salman said full production would resume by the end of the month.
Even before yesterday's reversal in prices, economists downplayed the prospect that the price spike could send the economy reeling. After all, Monday's surge only put prices back where they had been in May.
The attack knocked about 5 per cent of the world's crude supply offline. Oil prices have been trending mostly lower since spring because of concern about weak demand due to slowing economic growth.
Analysts say oil prices did not fully account for the risk posed by tension in the Middle East, but they will now. Iranian-backed Houthi rebels in Yemen claimed credit for the strike on Saudi oil facilities, but the Trump administration blamed Iran itself. The attack exposed the vulnerability of Saudi Arabia's oil infrastructure.
Higher oil prices mean more costly gasoline, and that will sap consumers' ability to spend on clothes, travel and restaurant meals. It will hit people who drive for a living.
Brian Alectine, a New York-based driver for the ride-hailing apps Lyft and Juno, said a 5- or 10-cent bump in the price of gasoline wouldn't be too bad, but an increase of 25 cents a gallon would make it hard to earn a profit after expenses, including the monthly rent on the car he drives for work.
“The more you drive, the more gas you use,” Alectine said. “It will have a big impact.”
AAA said the nationwide average price of gasoline could rise 25 cents this month. Patrick DeHaan, an analyst for price-tracking app GasBuddy, predicted an increase of 10 to 20 cents a gallon. He saw reports of price spikes and people rushing to top off their tanks.
“I'm not sure where this panic is coming from,” DeHaan said. “There will be an increase, but prices will still remain over a dollar cheaper than they were earlier this decade.”
Any drag on the economy from lower consumer spending would be at least partially offset by increased investment in oil and gas production, according to several leading economists.
Gregory Daco, chief economist at Oxford Economics, estimated that the net effect could be a decline of about one-tenth of a percentage point in US economic growth, which was 2.0 per cent in the second quarter.
“An oil price shock will weigh on consumer spending and will add a further strain on the global economy, but we're not talking about a major price shock at this level,” he said, while acknowledging that the situation could escalate if tension increases between the US and Iran — a major producer whose output has been greatly squeezed by Trump Administration sanctions.
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