The rise in oil prices in the wake of the weekend attack on the Saudi oil facilities is likely be “a wash” for a U.S. economy that now roughly produces as much oil as it consumes, said Lewis Alexander, chief U.S. economist at Nomura Securities, on Monday.
For the Fed staff preparing for this week’s interest-rate meeting, higher oil prices mean somewhat less household consumption and somewhat more industrial production.
“On net, it’s a wash,” Alexander said, in an interview.
Oil futures headed for their sharpest daily rise in years on Monday after an attack on major crude facilities in Saudi Arabia threatened to create a supply crunch. West Texas Intermediate crude for October delivery (CLV19), was up 13.7% at $62.31 a barrel.
The boost in oil prices will benefit manufacturing, the sector that has been the weakest for the U.S. economy, and crimp consumer spending, the part of the economy that has been robust.
The inflationary impact of higher oil prices is seen as temporary in nature and won’t derail the Fed from easing policy this week or later this year if needed.
“Any increase in inflation that may result from higher oil prices won’t scare the Fed — if anything, it will reassure it that it has to worry less about inflation staying persistently under target,” said Roberto Perli, a former Fed economist who is now a partner at Cornerstone Macro, an economic policy research firm.
It is not to say that economists are complacent about the oil-price jump. Alexander said there was some risk that consumer spending could cool off markedly.
Carl Weinberg, chief international economist at High Frequency Economics, said he was watching for signs that fear of supply interruptions will trigger speculation about price increases.
And there is a risk of a more protracted conflict in the Middle East that could push oil prices above $100 a barrel.
A team of Goldman Sachs analysts said oil prices could shoot above $75 a barrel if the Saudis get oil production fully back online soon. Economists at UBS saw the upside price risk at $80 a barrel if there was a significant OPEC outage.
“Higher oil prices for a long time becomes a problem because it will start to affect consumer confidence,” Perli said.
Amid the concern about oil supplies and prices, the Dow Jones Industrial Average (.DJI), was down 155 points in midday trading.
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