Rising oil prices haven’t hurt the US economy so far as economy grows at its fastest rate in nearly four years

US President Donald Trump speaks during a rally at JQH Arena in Springfield, Missouri on September 21, 2018. (AFP)
Updated 23 September 2018
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Rising oil prices haven’t hurt the US economy so far as economy grows at its fastest rate in nearly four years

  • US economy grew at its fastest rate in nearly four years during the April-through-June quarter.
  • Oil prices have been up roughly 40 percent in the past year. On Friday, benchmark US crude was trading around $71 a barrel, and the international standard, Brent, was closing in on $80.

DALLAS: The US’s rediscovered prowess in oil production is shaking up old notions about the impact of higher crude prices on the country’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 US economy. Instead, the economy grew at its fastest rate in nearly four years during the April-through-June quarter.
Despite this, President Donald Trump appears plainly worried about rising oil prices just a few weeks before midterm 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 OPEC, who account for about one-third of global oil supplies, are scheduled to meet this weekend with non-members including Russia.
The gathering is not expected to yield any big decisions — those typically come at major OPEC meetings such as the one set for December. Oil markets, however, were roiled on Friday by a report that attendees were considering a significant increase in production to offset declining output from Iran, where exports have fallen ahead of Trump’s reimposition of sanctions.
OPEC and Russia have capped production since January 2017 to bolster prices. Output fell even below those targets this year, and in June the same countries agreed to boost the oil supply, although they didn’t give numbers.
Oil prices have been up roughly 40 percent in the past year. On Friday, benchmark US crude was trading around $71 a barrel, and the international standard, Brent, was closing in on $80.
The national average price for gasoline stood at $2.85 per gallon, up 10 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 US still imports about six million barrels of oil a day on average, but that is down from more than 10 million a decade ago. In the same period, US production has doubled to more than 10 million barrels a day, according to government figures.
“Because the US 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.
The weakening link between oil and the overall economy was seen — in reverse — just three years ago. Then, plunging oil prices were expected to boost the economy by leaving more money in consumers’ pocket, yet GDP growth slowed at the same time that lower oil prices took hold during 2015.
Other economists caution against minimizing the disruption caused by energy prices.
“Higher oil prices are unambiguously bad for the US economy,” said Philip Verleger, an economist who has studied energy markets. “They force consumers to divert their income from spending on other items to spending on fuels.”
Since energy amounts to only about 3 percent of consumer spending, a cutback in that other 97 percent “causes losses for those who sell autos, restaurants, airlines, resorts and all parts of the economy,” Verleger said.
The federal Energy Information Administration said this month that the US likely reclaimed the title of world’s biggest oil producer earlier this year by surpassing the output of Saudi Arabia in February and Russia over the summer. If the agency’s estimates are correct, it would mark the first time since 1973 that the US has led the oil-pumping pack.


Oil dips on soaring US supply, but Iran sanctions still support crude

Updated 40 min 27 sec ago
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Oil dips on soaring US supply, but Iran sanctions still support crude

  • US sanctions against Iran have denied its government more than $10 billion in oil revenue so far
  • US crude oil production has risen to a record of 12.2 million barrels per day

SINGAPORE: Oil prices dipped on Thursday as record US output and rising crude stockpiles dampened the impact on markets of tighter US sanctions on Iran and producer club OPEC’s continued curbs on supply.
Brent crude futures were at $74.53 per barrel at 0241 GMT, down 4 cents from their last close.
US West Texas Intermediate (WTI) crude futures were at $65.75 per barrel, down 14 cents, or 0.2 percent, from their previous settlement.
Crude futures rose to 2019 highs earlier in the week after the United States said on Monday it would end all exemptions for sanctions against Iran, demanding countries halt oil imports from Tehran from May or face punitive action from Washington.
“Following the US decision to toughen its sanctions on Iran ... we have revised up our end-year forecast for Brent crude from $50 to $60 per barrel,” analysts at Capital Economics said in a note.
US sanctions against Iran have denied its government more than $10 billion in oil revenue since President Donald Trump first announced the move last May, a US official said on Thursday during a media call.
“Before sanctions ... Iran generated as much as $50 billion annually in oil revenue. We estimate that our sanctions have already denied the regime more than $10 billion since May (2018),” said Brian Hook, US Special Representative for Iran and Senior Policy Adviser to the Secretary of State.
The US decision try and bring down Iran oil exports to zero comes amid supply cuts led by producer Organization of the Petroleum Exporting Countries since the start of the year aimed at propping up prices.
As a result, Brent crude oil prices have risen by almost 40 percent since January.
Despite this, Capital Economics said “we still expect oil prices to fall this year as sluggish global growth weighs on oil demand, US shale output grows strongly and investor aversion to risk assets like commodities increases.”
In Asia, South Korea’s economy unexpectedly shrank in the first quarter, the Bank of Korea said on Thursday, marking its worst performance since the global financial crisis.
On the supply side, US crude oil production has risen by more than 2 million barrels per day (bpd) since early 2018 to a record of 12.2 million bpd currently, making the United States the world’s biggest oil producer ahead of Russia and Saudi Arabia.
In part because of soaring domestic production, US commercial crude oil inventories last week hit an October 2017 high of 460.63 million barrels, the Energy Information Administration said on Wednesday. That was a rise of 1.3 million barrels.