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Are Oil Prices Heading for Another Spike?

By in Energy on .
Pipeline moves crude oil from Prudhoe BayJoe Sohm/Visions of America/UIG via Getty Images

Are Oil Prices Heading for Another Spike?

The decline in the dollar’s exchange rate seems to have gathered momentum, in part because the person who has his signature on US currency, Treasury Secretary Steve Mnuchin, seems unperturbed by its weakness. If it continues, will energy costs spiral upward?

CAMBRIDGE – The price at the pump for premium gasoline topped $3 per gallon in much of the United States over the past few weeks, which is surprising to consumers but not to analysts of the world’s oil markets. From its local low two years ago, the price of oil has more than doubled. As with any market, where you stand on this price increase depends on where you sit.

Higher oil prices buttress the fortunes of producers abroad and at home. The International Monetary Fund upgraded the GDP growth outlook of all six of the top ten oil producers that were shown separately in its 2018 forecast update, and the projected growth of world trade volumes was raised half a percentage point this year and next. Increased oil revenues improve the fiscal positions of most producing economies, and some have taken advantage of global investors’ hardier appetite to issue sovereign debt.

In the US, the five states with the largest gains in oil production this decade recorded employment growth of 2.75% in 2017, double the national average. Meanwhile, the number of oil rigs nationwide increased by roughly 50%.

At the same time, a doubling of energy costs takes a significant bite out of US households’ budgets, with energy costs directly accounting for about 6.5% of consumer spending. Even more problematic, this is a regressive tax, disproportionately draining lower-income households’ discretionary spending power.

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