Thursday 17 October, 2019

US oil prices top $70 a barrel for the first time since 2014

Exxon Mobil added 1.2 percent early Monday, May 7, and Schlumberger rose 1.2 percent. (AP photo)

Exxon Mobil added 1.2 percent early Monday, May 7, and Schlumberger rose 1.2 percent. (AP photo)

US oil prices crashed through the $70-a-barrel mark on Monday for the first time since late 2014, foreshadowing costlier gasoline and consumer goods.

It's not clear that pricey crude will slow down the economy, however.

The stock market closed slightly higher as investors bet that companies and consumers can cope with the increase, although airlines — a big consumer of fuel — slipped.

Benchmark US crude rose $1.01 to settle at $70.73 a barrel on the futures market in New York. The international standard, Brent crude, was up $1.30 to $76.17 in London.

Analysts said the recent rally in oil prices has been driven mostly by strong demand and limits on production. But, they said, a contributing factor is concern that Iranian oil exports will fall if the US withdraws from a 2015 deal that eased sanctions on Iran in exchange for limits on its nuclear program. Also, US stockpiles of crude are down from this time last year.

The national average for gasoline is now $2.81 a gallon, according to the auto club AAA, and it's not even the peak driving season yet. Pump prices are up 15 cents from a month ago and 46 cents from a year ago.

Eventually fuel prices show up in the costs of all sorts of consumer goods that are hauled by plane, train or truck. Online shoppers could see fewer offers of free shipping, said Diane Swonk, chief economist for accounting firm Grant Thornton LLP.

Swonk believes that oil prices are not yet high enough to derail economic growth.

"We are still adding jobs, and that is helping us to absorb it," she said. "Wages aren't accelerating as rapidly as we would like, but we are hearing a lot of anecdotal reports of wages picking up and that should help."

Others are less sanguine. Longtime energy economist Philip Verleger believes the run-up is enough to trim growth "because consumers are going to have to cut expenditures on stuff other than gasoline." And he believes that oil prices are heading much higher.

Iran produces nearly 4 million barrels a day out of global total of about 98 million barrels per day. Analysts say that sanctions could cut Iran's sales by between 200,000 and 600,000 barrels a day.

 

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