We must be getting used to Middle East-related spikes in the price of oil.
Worries about the Syrian civil war sent crude oil prices above $110 a barrel last week, about the same level they reached in 2011 during the Libyan civil war and in 2012 when Iran was threatening to close the Straits of Hormuz. Mostly absent this time, however, is the usual fretting about how higher oil prices are going to sink the economy.
Partly, that may be due to lucky timing. Gasoline demand begins to drop at the end of the summer driving season, so it’s harder for refiners to pass on the higher prices.
Nationally, the average pump price of $3.58 a gallon is about 25 cents below where it was a year ago.
“The refiners have absorbed some of the increase in crude oil prices, but they won’t do it much farther,” says James Williams, an energy economist with WTRG Economics in London, Ark. “If prices remain anywhere near their current level for crude, we’re going to see some sticker shock at the pump.”
Consumers also may have become somewhat shock-resistant. After the gyrations of the past few years, an additional nickel or dime per gallon is no longer the budget-breaker it once was.
“It’s that old fool me once, fool me twice thing,” says Sameer Samana, an international strategist at Wells Fargo Advisors in St. Louis.
“You can only be surprised by that volatility and the price spikes so many times.”
The U.S. economy is less oil-dependent than it was a few years ago. Americans are driving fewer miles than they did in 2007, and our cars are more fuel-efficient.
Samana doesn’t think consumers will start tightening their purse strings, cutting back on other spending to compensate for the extra money they’re putting in their gas tank, unless gasoline goes above $4 a gallon.
That doesn’t appear likely at the moment. Syria is only a small oil producer, accounting for less than 1 percent of world supply.
Markets seem to be pricing in a risk that the conflict will affect big suppliers, such as Saudi Arabia, but that didn’t happen in the Libyan or Egyptian revolution, and it probably won’t happen this time either.
When Samana calculates a “fair value” for oil based just on known supply and demand factors, and not on geopolitical unknowns, he comes up with a price between $103 and $105 a barrel. The fear factor, then, is adding about $5 to the world price.
“If that stays up there for a sufficient amount of time, it’s going to affect the global economy,” Samana said.
For now, though, we should be more amazed by the height of oil’s floor than by its peaks.
Except for brief periods during the summers of 2011 and 2012, crude oil hasn’t fallen much below $85 a barrel during the last three years.
U.S. motorists, for their part, have gotten used to gasoline prices in the range of $3.50 a gallon, sometimes a bit higher and sometimes a bit lower.
“We’ve had the highest sustained prices in history,” Williams says. “We have never gone through a period this long with prices this high.”
That is despite increased oil production in the U.S. and weak consumption across the developed world. The real news from the market isn’t that oil sometimes gets expensive because of events in the Middle East. It’s that oil never gets cheap anymore.