Crude oil prices up now, but surge might be ‘short-term’
Sharp increase since mid-June
NEW YORK, Nov 14, (AP): Oil prices have jumped by about onethird since the summer on signs of stronger economic growth around the world and fear of instability in the Middle East.
So far, however, the run-up isn’t setting off alarm bells. Prices remain far below their 2014 peaks. And US producers are pumping at a record rate, leading some experts to bet that the higher prices won’t last long.
At midday Monday, Brent crude, the benchmark international price, was down 27 cents to $63.25, while the standard for US oil was up 10 cents to $56.84.
Those are sharp increases since mid-June — about 35 percent for US crude, nearly 40 percent for Brent.
“That means slightly higher inflation, but we’re not talking about unmanageable prices,” said Diane Swonk, chief economist of DS Economics. “If it got back to $100 a barrel, then we would have a real problem.”
Swonk said discretionary spending by consumers seems to be holding up despite the increase that has already shown up at the pump. In her mind and those of other economists, we are in better shape to manage higher energy prices for many reasons including a stronger economy and job growth.
Still, consumers will feel the effect, even if it’s less dramatic than price spikes in 2008 and 2014. In the US, the average price for a gallon of regular gasoline has risen 30 cents since early July. Higher fuel costs show up in all kinds of things consumers buy, but some industries are particularly vulnerable. For airlines, for instance, jet fuel rivals labor as the biggest cost — each accounts for about one-third of all expenses.
Helane Becker, an analyst for Cowen and Co, said that with oil in the mid-$60s, she expects airlines to attempt to raise ticket prices. If fuel prices continue to rise, she said, the airlines will cut back on plans to increase flying next year. That could tighten the supply of airline seats, driving prices yet higher.
Andrew Kenningham, chief global economist at Capital Economics in London, said however that the impact of higher oil prices on companies and households will be limited because for the year as a whole, average oil prices are up only slightly over 2016.
“So far the price moves have not been huge, so the economic impact shouldn’t be that large,” Kenningham said. He called the increase in average prices for 2017 “trivial” compared with the collapse from around $115 to less than $30 a barrel that occurred between mid2014 and early 2016.
Crude prices began rising this summer as positive signs rolled in for the world’s biggest energy-hungry economies: the US, Europe and China. Prices were also influenced as expectations grew that OPEC would continue to limit production next year, and on rising tension between Saudi Arabia and Iran.
Saudi Arabia, the world’s biggest oil producer, is in the midst of an internal power struggle. Its ambitious Crown Prince, Mohammad bin Salman, has ordered the arrests of rivals, and some think he could take a tougher line against Iran, Saudi Arabia’s rival for preeminence in the Middle East. That raises uncertainty about future oil supplies from the oil-rich region.