BUMP AT THE PUMP
Saudi attack expected to boost U.S. gas prices by 10 to 25 cents a gallon
Attacks on crucial Saudi oil installations crippled the world’s second-largest oil producer and sparked new geopolitical tensions - but how much pain consumers feel will hinge on how long it takes normal output to return, experts say.
The weekend drone strikes marked the biggest disruption to Saudi Arabia’s oil industry since the early 1990s, but if crude stockpiles can tide over global markets and production bounces back quickly, the episode will have a negligible effect on pump prices.
But should the recovery take weeks or months, the impact could be far-reaching and lasting. Higher fuel prices can not only motivate
consumers - the main drivers of the economy - to cut spending elsewhere, they ultimately reach nearly every corner of the economy by raising the cost of doing business - particularly for airlines, cruise ships, railroads, utilities and retailers.
State-run Saudi Aramco churned out 9.85 million barrels per day in August, according to the U.S. Energy Information Administration. But Saturday’s attack on an oil processing plant and nearby oil field forced the kingdom to suspend production of 5.7 million barrels of crude, or nearly 6% of the 100 million barrels the world consumes each day.
The company initially said it hoped to restore a third of that lost production - about 2 million barrels - by the end of Monday, and it’s given no timetable for a full recovery.
Consumers could be looking at a 10- to 25-cent increase in gas prices in
the coming weeks, said Ed Moya, an analyst with OANDA. Though such an jump would be relatively modest, it would come at an unwelcome moment, threatening the U.S. economy’s most powerful engine amid mounting fears of a slowdown.
“All the sentiment indicators have been softening, and any pressure on the consumer could derail the case for higher equities we’ve seen in recent weeks,” Moya said.
Consumer spending powers about 70% of the U.S. economy, and retail sales rose in August, even as other key economic indicators weakened under the weight of the trade war.
Falling demand had sent gas prices lower after Labor Day, so consumers should be able to bear a short-term surge in prices more easily. On Monday, the average price for a gallon of gas in the U.S. was $2.564 according to AAA, about 28 cents lower than a year ago.