Economy grows even with rising oil prices
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.