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.


Maalem Financing raises $26m in debut sukuk

Updated 17 October 2018
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Maalem Financing raises $26m in debut sukuk

  • The sukuk from Maalem, a shariah-compliant commercial and consumer financing firm, is a small but novel deal
  • The three-year unsubordinated deal was sold through a private placement and Maalem could tap the market again

LONDON: Saudi Arabia’s Maalem Financing has raised SR100 million ($26.6 million) from a debut sale of Islamic bonds, or sukuk, as the firm seeks to develop a crowdfunding product and expand its operations, a senior executive said on Tuesday.
The sukuk from Maalem, a shariah-compliant commercial and consumer financing firm, is a small but novel deal in a market that is dominated by issuance from sovereign institutions and Islamic banks.
The three-year unsubordinated deal was sold through a private placement and Maalem could tap the market again as early as January next year, said John Sandwick, a member of Maalem’s board of directors.
“The program is for SR500 million and with 3.6 times oversubscription, there seems to be a lot of demand,” he said.
Additional sales of sukuk aimed to raise between SR100 million and SR200 million, depending on market conditions, he said, adding that Maalem may consider a dollar-denominated sukuk issuance at a later stage.
The debut transaction used a structure known as murabaha, a cost-plus-profit arrangement commonly used in Saudi Arabia. The firm hoped to use an asset-backed structure for future deals, Sandwick said.
Established in 2009, Maalem received regulatory approval to operate as a non-real estate finance company in 2016 and increased its capital in 2017 to SR150 million.
The company plans to open several regional offices by the end of 2018 and is awaiting regulatory approval for a crowdfunding license, Sandwick said.
Crowdfunding enables startup firms to collect small sums of money from many individuals as an alternative to bank loans.
Albilad Capital, the investment banking unit of Bank Albilad, served as sole lead manager and arranger of the sukuk.