How an Oil Price Surge Could Hurt the U.S. Economy

How an Oil Price Surge Could Hurt the U.S. Economy

And the University of Michigan reported Friday that its preliminary September reading for consumer confidence stood at 92, a bit better than expected and an improvement from August.[Saudi Arabia’s new energy minister is taking over in a crisis.]Changes in energy prices can cause broader economic swings, including when prices drop sharply. A plunge in oil prices to $30 a barrel in February 2016, from $106 in June 2014, dealt a blow to manufacturing as demand for oil-related products fell and, in turn, slowed overall economic growth.The effect of higher oil prices on businesses is complicated because oil’s role in the economy has changed since the energy shocks of the 1970s. Buoyed by oil production from shale deposits in Texas, New Mexico and other states, America has slashed imports and has become a major exporter of oil and gas.Higher prices would help not only oil companies but also steel producers, which have become major suppliers of metal pipe and other goods to the energy industry. They would most likely see a pickup in demand as drilling activity increased, offsetting some of the damage a spike would cause to consumer spending.But other businesses, particularly those in the transportation sector, could suffer. Companies, including airlines and delivery firms, that rely on cheap fuel to make money distributing packages for online retailers could be big losers if oil prices soar.“Shale has shifted the paradigm,” said Gregory Daco, chief United States economist at Oxford Economics. “On the one hand, with higher prices there is a hit to consumers. But there’s an incentive for oil and gas companies to invest and produce more to reap the benefits.”The biggest risk to consumers — and the economy itself — would be a significant military conflict between the United States and Iran. Businesses, already cautious about spending, would pull back further. Consumers would likewise retreat.“When these things happen, people stay home and watch the news,” said Mr. Blitz of T.S. Lombard. “You’d see a dip in spending at the mall.”


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