mostlycloudy
Wednesday November 22nd, 2017 12:22AM

Oil prices are up now, but surge might be short-term

By The Associated Press

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.

At midday Monday, Brent crude, the benchmark international price, was down 27 cents to $63.25, while the standard for U.S. oil was up 10 cents to $56.84.

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 and job growth.

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, thanks to higher prices.

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.

If fuel prices continue to rise, Becker said, airlines will cut back on plans to increase flying next year. That could tighten the supply of airline seats, driving prices yet higher.

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.

Crude prices began rising this summer as positive signs rolled in for the world's biggest energy-hungry economies: the U.S., Europe and China. Prices were also influenced as expectations grew that OPEC would continue to limit production next year, and on rising tension between Saudi Arabia and Iran.

Saudi Arabia, the world's biggest oil producer, is in the midst of an internal power struggle. Its ambitious crown prince, Mohammad bin Salman, has ordered the arrests of rivals, and some think he could take a tougher line against Iran, Saudi Arabia's rival for pre-eminence in the Middle East. That raises uncertainty about future oil supplies from the oil-rich region.

However, many market-watchers expect such Mideast tensions to boost oil prices only temporarily — unless a direct conflict breaks out between Saudi Arabia and Iran.

Meanwhile, higher prices are encouraging U.S. companies to pump more. The U.S. Energy Information Administration reported that domestic production hit a record 9.62 million barrels of oil a day in the week that ended Nov. 3, bouncing back from less than 8.5 million barrels a day as recently as October 2016.

Oilfield-services company Baker Hughes reported Friday that the number of U.S. oil rigs showed the biggest one-week increase since June.

The drilling frenzy in the U.S. could frustrate OPEC's attempt to limit supplies and bolster prices.

Analysts at Germany's Commerzbank say drilling activity tends to rise about four months after a rise in oil prices. So, they concluded, "there is much to suggest that last week's rise in drilling activity marked the start of a trend."

"It is most likely that oil prices will drop back," Kenningham said. "Investors continue to anticipate that prices will drop."

___

Carlo Piovano reported from London. David Koenig reported from Dallas.

  • Associated Categories: Associated Press (AP), AP World News, AP Business, AP Business - Economy, AP Business - Industries, AP Business - Utilities
© Copyright 2017 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
The Latest: Saudi UN ambassador denies Yemen embargo
Saudi Arabia's U.N. ambassador is denying that there has been an embargo on Yemen, saying "a temporary procedure" was taken for a few days to ensure the safety and security of Yemenis and Saudis and supplies were available
3:01PM ( 10 minutes ago )
'Hamilton' creator to use London debut as climate fundraiser
Creator of hit musical "Hamilton" plans to use international opening in London to raise money to combat climate change
3:01PM ( 10 minutes ago )
Menendez jury says it's deadlocked; judge says to continue
The jury in the New Jersey bribery trial of Democratic US Sen. Bob Menendez and a wealthy friend from Florida has told the judge it can't reach a verdict on any of the 19 counts against the men
2:55PM ( 17 minutes ago )
Associated Press (AP)
Saudi walks back escalation as dramatic moves backfire
Saudi Arabia tries to walk back escalation as its dramatic moves to counter Iran in region backfire
2:29PM ( 43 minutes ago )
The Latest: Iran's death toll from earthquake rises to 445
Iran's semi-official Tasnim news agency is reporting that 445 people were killed and 7,370 injured in the Sunday earthquake along the Iran-Iraq border
2:15PM ( 57 minutes ago )
Business chiefs from EU, UK ask May to speed up Brexit talks
Business leaders from both sides of the English Channel urge Prime Minister Theresa May to accelerate Brexit talks amid trade uncertainty they say threatens jobs, investment
2:01PM ( 1 hour ago )
AP World News
Light at the end of GE's tunnel? Lighting, more, may be gone
General Electric slashed its dividend in half and trimmed expectations going forward at its investor meeting in New York
2:18PM ( 54 minutes ago )
US budget deficit up sharply to $63.2 billion in October
US budget deficit climbs to $63.2 billion in October, up 37.9 percent from a year ago
2:04PM ( 1 hour ago )
Missouri attorney general investigating Google
Missouri's attorney general says his office is investigating Google for potential violations of the state's consumer-protection and antitrust laws
1:51PM ( 1 hour ago )
AP Business
Trump focuses on trade, fighting terrorism with Duterte
With President Donald Trump's lengthy Asia trip down to its final days, it's become clear he has opted to publicly prioritize trade and combating terrorism rather than human rights
11:25AM ( 3 hours ago )
Trump embraces Duterte as Asia trip winds down
President Donald Trump is wrapping up his extensive trip to Asia with an international summit and one-on-one meetings with international partners, including his Philippine host who is overseeing a bloody drug war
9:39AM ( 5 hours ago )
Global stocks turn lower after recent record highs
Global stocks are down as investors become more cautious after several market indexes hit record highs in the past week
8:18AM ( 6 hours ago )
AP Business - Economy
Abu Dhabi oil company to put fuel stations on stock market
State-run Abu Dhabi National Oil to put minority stake in its gas station subsidiary up on local stock market
2:45AM ( 12 hours ago )
Emails could provide answers at ex-state auditor's new trial
Former Washington state Auditor Troy Kelley, whose federal fraud trial last year ended with an acquittal on one count and a deadlocked jury on more than a dozen others, will be in a courtroom once again as prosecutors try him a second time
2:33PM ( 1 day ago )
Frustration sets in after coal mine health study suspended
Some people living near mountaintop coal mines in West Virginia are frustrated the Trump administration has suspended the latest federal study on the health impact of surface mining in Appalachia
9:50AM ( 2 days ago )
AP Business - Industries
Climate activists stage protest at German coal-fired plant
Environmental activists have staged a protest at a German coal-fired power plant, as Italy becomes the latest country to announce a deadline for ending its use of one of the most heavily polluting fossil fuels
3:02PM ( 3 days ago )
Alaska lawmaker sees financial boon in refuge drilling
Alaska Sen. Lisa Murkowski says her legislation to open Alaska's Arctic National Wildlife Refuge to oil and gas drilling would generate $2 billion in royalties over the next decade _ with half the money going to her home state
2:30PM ( 3 days ago )
The Latest: UN chief to urge action at climate conference
U.N. Secretary-General Antonio Guterres to urge leaders at climate talks to accelerate timetable for cutting emissions
2:11PM ( 3 days ago )
AP Business - Utilities
The Latest: Saudi UN ambassador denies Yemen embargo
Saudi Arabia's U.N. ambassador is denying that there has been an embargo on Yemen, saying "a temporary procedure" was taken for a few days to ensure the safety and security of Yemenis and Saudis and supplies were available
3:01PM ( 11 minutes ago )
'Hamilton' creator to use London debut as climate fundraiser
Creator of hit musical "Hamilton" plans to use international opening in London to raise money to combat climate change
3:01PM ( 12 minutes ago )
Menendez jury says it's deadlocked; judge says to continue
The jury in the New Jersey bribery trial of Democratic US Sen. Bob Menendez and a wealthy friend from Florida has told the judge it can't reach a verdict on any of the 19 counts against the men
2:55PM ( 18 minutes ago )
Trump buddies up to Duterte, doesn't highlight human rights
President Donald Trump is winding down his visit to Asia with a focus on promoting trade and fighting terrorism and not on publicly highlighting human rights abuses
2:53PM ( 20 minutes ago )
Video recovered, 10 more charged in Penn State frat death
Investigators are filing new charges after recovering deleted security camera footage taken in a Penn State fraternity house basement the night a pledge consumed a dangerous amount of alcohol and suffered fatal injuries
2:52PM ( 21 minutes ago )