Econ­omy grows even with ris­ing oil prices

Greenwich Time - - BUSINESS -

Amer­ica’s re­dis­cov­ered prow­ess in oil pro­duc­tion is shak­ing up old no­tions about the im­pact of higher crude prices on the U.S. econ­omy.

It has long been con­ven­tional wis­dom that ris­ing oil prices hurt the econ­omy by forc­ing con­sumers to spend more on gaso­line and heat­ing their homes, leav­ing less for other things.

Pre­sum­ably that kind of run-up would slow the U.S. econ­omy. In­stead, the econ­omy grew at its fastest rate in nearly four years dur­ing the April-through-June quar­ter.

Pres­i­dent Don­ald Trump ap­pears plainly wor­ried about ris­ing oil prices just a few weeks be­fore mid-term elec­tions that will de­cide which party con­trols the House and Se­nate.

“We pro­tect the coun­tries of the Mid­dle East, they would not be safe for very long with­out us, and yet they con­tinue to push for higher and higher oil prices!” Trump tweeted on Thurs­day. “We will re­mem­ber. The OPEC mo­nop­oly must get prices down now!”

Mem­bers of The Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries, who ac­count for about one-third of global oil sup­plies, are sched­uled to meet this week­end with non­mem­bers in­clud­ing Rus­sia.

The same coali­tion of OPEC and a few out­siders has lim­ited pro­duc­tion since Jan­uary 2017 to bol­ster prices, but they agreed in June to a slight in­crease to off­set de­clin­ing out­put from Iran, where ex­ports have fallen ahead of Trump’s reim­po­si­tion of sanc­tions.

Oil prices are up roughly 40 per­cent in the past year. On Fri­day, bench­mark U.S. crude was trad­ing around $71 a bar­rel, and the in­ter­na­tional stan­dard, Brent, was clos­ing in on $80.

On Thurs­day, the na­tional av­er­age price for gaso­line stood at over $2.84 per gal­lon, up 9 per­cent from a year ago, ac­cord­ing to auto club AAA. That in­crease likely would be greater were it not for a slump in gaso­line de­mand that is typ­i­cal for this time of year, when sum­mer va­ca­tions are over.

The United States still im­ports about 6 mil­lion bar­rels of oil a day on av­er­age, but that is down from more than 10 mil­lion a decade ago. In the same pe­riod, U.S. pro­duc­tion has dou­bled to more than 10 mil­lion bar­rels a day, ac­cord­ing to govern­ment fig­ures.

“Be­cause the U.S. now is pro­duc­ing so much more than it used to, (the rise in oil prices) is not as big an im­pact as it would have been 20 years ago or 10 years ago,” said Michael Ma­her, an en­ergy re­searcher at Rice Uni­ver­sity and a former Exxon Mo­bil econ­o­mist.

Other economists cau­tion against min­i­miz­ing the dis­rup­tion caused by en­ergy prices.

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