Crude oil's rally above US$30 a barrel for the first time in 15 months will raise costs for importers and consumers without derailing a US economic recovery, economists and analysts said.
Speculation that the US is preparing to invade Iraq and topple President Saddam Hussein has helped spur a 17 percent rally in oil over the past two months. The US, the biggest energy consumer, imports about 55 percent of its oil.
"Prices will have to rise to the US$35 to US$38 range before there's an impact on the fledgling recovery," said Vincent Boberski, a senior economist at RBC Dain Rauscher Inc. in Chicago.
Oil companies don't expect prices to stay above US$30 for long, said Eugene X. Hodge, a senior investment officer at John Hancock Mutual Life Insurance Co who co-manages a US$4 billion oil and gas bond portfolio. "It's a temporary blip due to the political situation."
Crude oil for September delivery rose US$0.27, or 0.9 percent, to US$30.11 a barrel on the New York Mercantile Exchange.
It was the highest closing price for a contract closest to expiration since Feb. 13, 2001.
The rally "can't help the economy," Hodge said. "It's more money out of peoples' pockets for gasoline."
Higher oil prices can accelerate the rate of inflation, though the overall rate is too low right now to worry economists.
The personal consumption expenditures price index, the Federal Reserve's preferred inflation gauge, rose at a 2.5 percent annual rate in the second quarter, up from a 1.1 percent rate of increase during the first three months of the year. Excluding food and energy costs, the index rose at a 1.7 percent rate.
"The Fed has made it clear that it's more concerned about growth rather than inflation," said RBC's Boberski. "Outside of energy, prices are behaving very well."
Oil's rise above US$30 a barrel may encourage more people to associate oil prices with slow economic growth, said Aaron Brady, an analyst at Energy Security Analysis Inc in Wakefield, Massachusetts.
"This is the magic number when people start to get worried about the economy," Brady said. "Weak economies are often precipitated by high oil prices."
The increase in oil prices of about US$9 a barrel this year will take time to be reflected in the economy, said Gemma Wright, director of research at Barclays Capital Inc in New York.
"We use a rule that for every US$10 jump in the oil price it slows the economy by about 0.3 percentage point of GDP annual growth, with a six-to-twelve-month lag," she said.
The US gross domestic product expanded at a 1.1 percent annual pace in the second three months of the year, down from a 5 percent growth rate in the first quarter, according to the Commerce Department. Wright expects the US economy to grow 3 percent this year and 4.5 percent in 2003.
Oil prices peaked at a 10-year high of US$37.80 a barrel in September 2000, prompting President Bill Clinton to order the release of 30 million barrels of oil from the nation's Strategic Petroleum Reserve to replenish refiners' supply. That peak in oil prices came six months before the US slipped into a recession.
The Bush administration said yesterday it has no plans now to release oil from the reserve.
Service station prices for regular gasoline, the most visible oil price to US consumers, averaged US$1.392 a gallon yesterday, US$0.035 lower than a year earlier, according to the Energy Department. Pump prices have climbed 27 percent this year.
"Once gasoline gets to between US$1.50 and US$2, then the consumer starts to feel it and cuts back on usage," said Alan Wright, vice president of supply distribution for Knoxville, Tennessee-based Pilot Travel Centers LLC. "You'll see it with the trucking companies. They'll start adding on a surcharge" to cover higher diesel costs, said Wright, whose company owns 232 travel centers and sells 2.8 billion gallons of diesel and gasoline a year.
Concern that there might be a war with Iraq is adding between US$3 and US$5 to current oil prices, John Hancock's Hodge said.
"Every day you pick up a paper and wonder if we are going to invade Iraq so it's no wonder that the traders have pushed prices up," Hodge said.
High oil prices may stunt a recovery in the world economy because the Organization of Petroleum Exporting Countries may not act fast enough to add extra oil to stem the rally, Mike Wittner, a principal oil-price analyst for the International Energy Agency, said in an interview.
The Paris-based IEA was established in 1974 to represent the interests of the US and other industrialized countries following an oil embargo by Arab oil-producing nations the previous year.
OPEC meets next on Sept. 19 in Osaka, Japan.
‘UPHOLDING PEACE’: Taiwan’s foreign minister thanked the US Congress for using a ‘creative and effective way’ to deter Chinese military aggression toward the nation The US House of Representatives on Monday passed the Taiwan Conflict Deterrence Act, aimed at deterring Chinese aggression toward Taiwan by threatening to publish information about Chinese Communist Party (CCP) officials’ “illicit” financial assets if Beijing were to attack. The act would also “restrict financial services for certain immediate family of such officials,” the text of the legislation says. The bill was introduced in January last year by US representatives French Hill and Brad Sherman. After remarks from several members, it passed unanimously. “If China chooses to attack the free people of Taiwan, [the bill] requires the Treasury secretary to publish the illicit
NO HUMAN ERROR: After the incident, the Coast Guard Administration said it would obtain uncrewed aerial vehicles and vessels to boost its detection capacity Authorities would improve border control to prevent unlawful entry into Taiwan’s waters and safeguard national security, the Mainland Affairs Council (MAC) said yesterday after a Chinese man reached the nation’s coast on an inflatable boat, saying he “defected to freedom.” The man was found on a rubber boat when he was about to set foot on Taiwan at the estuary of Houkeng River (後坑溪) near Taiping Borough (太平) in New Taipei City’s Linkou District (林口), authorities said. The Coast Guard Administration’s (CGA) northern branch said it received a report at 6:30am yesterday morning from the New Taipei City Fire Department about a
A senior US military official yesterday warned his Chinese counterpart against Beijing’s “dangerous” moves in the South China Sea during the first talks of their kind between the commanders. Washington and Beijing remain at odds on issues from trade to the status of Taiwan and China’s increasingly assertive approach in disputed maritime regions, but they have sought to re-establish regular military-to-military talks in a bid to prevent flashpoint disputes from spinning out of control. Samuel Paparo, commander of the US Indo-Pacific Command, and Wu Yanan (吳亞男), head of the People’s Liberation Army (PLA) Southern Theater Command, talked via videoconference. Paparo “underscored the importance
IN BEIJING’S FAVOR: A China Coast Guard spokesperson said that the Chinese maritime police would continue to carry out law enforcement activities in waters it claims The Philippines withdrew its coast guard vessel from a South China Sea shoal that has recently been at the center of tensions with Beijing. BRP Teresa Magbanua “was compelled to return to port” from Sabina Shoal (Xianbin Shoal, 仙濱暗沙) due to bad weather, depleted supplies and the need to evacuate personnel requiring medical care, the Philippine Coast Guard (PCG) spokesman Jay Tarriela said yesterday in a post on X. The Philippine vessel “will be in tiptop shape to resume her mission” after it has been resupplied and repaired, Philippine Executive Secretary Lucas Bersamin, who heads the nation’s maritime council, said
RSS