Consumers may strike back if oil prices keep ascending
Over the past few years, energy executives, analysts and oil ministers fretted about low oil prices. Now, with prices holding above $70 for U.S. crude, they are shifting their focus to the potential impact of rising oil prices on global demand.
Oil prices jumped after the Trump administration scuttled the Iran nuclear deal earlier this month and planned new sanctions to squeeze the Islamic Republic’s crude exports. With the peak driving season here, Dan Yergin, the Pulitzer Prize-winning author of 1990’s “The Prize: The Epic Quest for Oil, Money and Power,” predicted in a CNBC interview that U.S. prices
“It would be extraordinary if such a large jump did not affect demand growth.” International Energy Agency
could hit $85 this summer.
Patrick Pouyanne, CEO of French oil major Total, said he wouldn’t be shocked if oil hit $100 a barrel this year, according to Bloomberg.
While rising oil prices would undoubtedly boost Houston, they could have some domestic drawbacks. U.S. drivers are sensitive to higher pump prices and eventually will find ways to cut consumption.
Dharmendra Pradhan, India’s petroleum minister, tweeted that he warned Saudi energy minister Khalid Al-Falih that the jump in international oil prices to more than $80 a barrel could have a “negative impact on consumers and the Indian economy.” India accounts for about 5 percent of the world’s oil demand.
The International Energy Agency revised its outlook for global demand in 2018 from 1.5 million barrels a day to 1.4 million last week because of rising prices.
Iran’s oil exports sank by 1.2 million barrels a day after the U.S. and other Western powers imposed sanctions six years ago. And in crisisridden Venezuela, output last month clocked in 550,000 barrels a day lower than the output cap it set in Vienna in 2016.
“In Venezuela, the pace of decline of oil production is accelerating, and by the end of this year output could have fallen by several hundred thousand barrels a day,” the IEA said in a recent report. “The potential double supply shortfall represented by Iran and Venezuela could present a major challenge for producers to fend off sharp price rises.”
Until a few years ago, climbing oil prices represented a headwind for the U.S. as higher energy costs sucked money from consumers that they could have spent on other goods and services.
These days, however, economists are split on the effect of higher oil prices on the U.S. economy. On the one hand, rising fuel prices could persuade drivers to avoid the roads. On the other, the U.S. has become a major oil exporter, which brings more money into the country.
The IEA said global demand remains strong at a projected 99.2 million barrels a day this year.
“Still,” the IEA said, “the fact is that crude oil prices have risen by nearly 75 percent since June 2017. It would be extraordinary if such a large jump did not affect demand growth.”