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The Journal Gazette

  • Associated Press Cristian Rodriguez fuels his vehicle in Sacramento, Calif., last month. Americans are paying an average of 30 cents more a gallon for gasoline since early July, but experts don't believe the higher prices will last long.

Tuesday, November 14, 2017 1:00 am

Rising gas prices not big concern

On average, cost up 30 cents a gallon since early July

CARLO PIOVANO and DAVID KOENIG | Associated Press

Oil prices have jumped 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.