America's rediscovered prowess in oil production is shaking up old notions about the impact of higher crude prices on the U.S. economy.
It has long been conventional wisdom that rising oil prices hurt the economy by forcing consumers to spend more on gasoline and heating their homes, leaving less for other things.
Presumably that is happening again with the 2018 run-up in crude prices, but it has hardly slowed the economy, which grew at its fastest rate in nearly four years during the April-through-June quarter.
President Donald Trump appears worried about rising oil prices, which are creating higher prices at the gasoline pump for motorists just a few weeks before mid-term elections that will decide which party controls the House and Senate.
Members of OPEC are scheduled to meet this weekend.
Oil prices are up roughly 40 percent in the past year. On Friday, benchmark U.S. crude was trading around $71 a barrel, and the international standard, Brent, was closing in on $80.
On Thursday, the national average price for gasoline stood at over $2.84 per gallon, up 9 percent from a year ago, according to auto club AAA. That increase likely would be greater were it not for a slump in gasoline demand that is typical for this time of year, when summer vacations are over.
The United States still imports about 6 million barrels of oil a day on average, but that is down from more than 10 million a decade ago. In the same period, U.S. production has doubled to more than 10 million barrels a day, according to government figures.
“Because the U.S. now is producing so much more than it used to, (the rise in oil prices) is not as big an impact as it would have been 20 years ago or 10 years ago,” said Michael Maher, an energy researcher at Rice University and a former Exxon Mobil economist.
The weakening link between oil and the overall economy was seen — in reverse — just three years ago. Then, plunging oil prices were expected to boost the economy by leaving more money in consumers’ pocket, yet GDP growth slowed at the same time that lower oil prices took hold during 2015.
Other economists caution against minimizing the disruption caused by energy prices.
“Higher oil prices are unambiguously bad for the U.S. economy,” said Philip Verleger, an economist who has studied energy markets. “They force consumers to divert their income from spending on other items to spending on fuels.”
Since energy amounts to only about 3 percent of consumer spending, a cutback in that other 97 percent “causes losses for those who sell autos, restaurants, airlines, resorts and all parts of the economy,” Verleger said.
Material from the Associated Press has been used in this report.
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