New York – The price of oil topped $50 a barrel this week for the first time since July, delivering a cash infusion to oil producers and a lift to beaten-down energy stocks.
Yet the arrival of higher energy prices isn’t necessarily bad news for consumers — at least not yet. Analysts expect gasoline and airline fares to stay relatively low at least through the summer travel season. And most think the economy can withstand slightly higher energy costs.
Analysts say oil prices could rise further, but most have a cap around $60 to $65 a barrel. While global production has slowed, particularly in the U.S., supplies are still more than ample enough to meet demand.
With the collapse of oil prices apparently over here are some things to watch for:
Most economists say that in the long run lower oil prices are better for the U.S. economy than higher prices. Federal Reserve Chair Janet Yellen has said lower oil prices “on net, likely boost spending and economic activity.” However, she did worry that oil-producing countries could suffer economic hardship that could “have adverse spillover effects to the rest of the global economy.”
Now, the return of oil prices to $50 a barrel could eventually pinch household budgets, but probably won’t have a huge economic impact.
“We went from over $100 down to $30. Bouncing back to $50 is relatively small,” says Scott Hoyt, senior director of consumer economics at Moody’s Analytics. “I don’t think it’s going to be much of a blow to (consumer) confidence.” In the United States, consumers generate about 70 percent of economic activity.
Any pain to the consumer should be partially offset by relief in the oil patch. Oil fell from above $100 in June 2014 to $26 early this year as global production outpaced supply. Energy companies sharply reduced oil and gas drilling. Rising oil prices could at least “stop the bleeding” in the energy industry, Hoyt says.
For importers, such as the 19-country eurozone and Japan, higher oil prices are expected to be a slight negative for their economies as consumers pay more for fuel and companies incur higher energy costs.
“The rebound in oil prices will sap some of the momentum from the economic recoveries in the eurozone and Japan,” said Julian Jessop, chief global economist at Capital Economics in London, in a note to clients.
Although gas prices in the U.S. are back above $2 in most locations, this could still be the summer of the road trip. AAA says more than 33 million people will drive for vacation over the Memorial Day weekend. The Energy Department recently raised its forecast for summer gas prices to an average of $2.21 a gallon from $2.04. That’s still 42 cents a gallon below last summer’s average.
The national average for a gallon of gasoline is currently $2.31. Analysts expect the price to soon start falling sometime and sell for close to $2 for a good part of the summer.
The rise in gas prices shouldn’t curb Americans’ enthusiasm for SUVs and trucks. In April, 54 percent of the new vehicles sold in the U.S. were trucks and SUVs. Many SUVs are more fuel-efficient than they used to be, and the switch by consumers started years ago when gas was more than $3.50 per gallon.
The plunge in oil to a 12-month low rattled markets earlier in the year. The recent increase in the price of oil has sparked a rally in energy stocks. The S&P 500’s energy sector is up 17 percent over the last three months, by far the biggest gain of any sector. The broader S&P 500 itself is up about 7% over the same time. Still, energy investors’ wounds haven’t yet healed. Since the end of June 2014, the S&P 500 is up about 7 percent while the energy sector is still down 31 percent.