Oil prices up by one-third since June

The Palm Beach Post - - BUSINESS - By Carlo Pio­vano and David Koenig

Oil prices have jumped by about one-third 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 U.S. pro­duc­ers are pump­ing at a record rate, lead­ing some ex­perts to bet that the higher prices won’t last long.

In trad­ing Mon­day, Brent crude, the bench­mark in­ter­na­tional price, fell 36 cents to $63.16, while the stan­dard for U.S. oil was up a penny to $56.75.

Those are sharp in­creases since mid-June — about 35 per­cent for U.S. 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.

Still, con­sumers will feel the ef­fect, even if it’s less dra­matic than price spikes in 2008 and 2014. In the U.S., the av­er­age price for a gal­lon of reg­u­lar gaso­line has risen 30 cents since early July.

Moody’s An­a­lyt­ics es­ti­mates that if the el­e­vated oil prices last a year, they would cost U.S. con­sumers $30 bil­lion and shave a cou­ple tenths of a per­cent­age point off the na­tion’s eco­nomic out­put.

Chris Lafakis, an en­ergy an­a­lyst at Moody’s, said air­lines and de­liv­ery com­pa­nies such as FedEx and UPS will see prof­its re­duced partly be­cause they can’t raise prices quickly enough when fuel costs rise. Oil-pro­duc­ing coun­tries and oil com­pa­nies — in­clud­ing U.S. out­fits such as Exxon Mo­bil, Chevron, Devon and Anadarko — are the ob­vi­ous win­ners, he said. Third-quar­ter profit at Exxon and Chevron was about 50 per­cent higher than a year ago.

Jet fuel, which is closely tied to the price of oil, ac­counts for about one-third of an air­line’s op­er­at­ing costs — ri­val­ing la­bor as the big­gest ex­pense. 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.

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 mid-2014 and early 2016.

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