Economy faces modest hit if oil price disruption is brief
DALLAS — 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 U.S. economy will probably be modest.
Prices spiked Monday by more than 14%, their biggest single-day jump in years, but retreated Tuesday, reversing some of the increase. U.S. oil fell nearly 5% to $59.96 a barrel, while Brent, the international benchmark, dropped 5.3% to $65.34.
A gallon of regular in the U.S. stood at $2.59 on Tuesday, up 3 cents from the previous day, according to the 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.
Tuesday’s reversal in prices came as Saudi Arabia’s energy minister reported that 50% 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 Tuesday’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% of the world 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.”