Oil Price Surge Could Hurt the Economy

Written by Staff Writer

Jack in the box OilHow an Oil Price Surge Could Hurt Consumer Spending, and the Economy -New York Times
"For months, American consumers have kept the economy humming. While businesses pulled back, shoppers continued to spend.

But a prolonged surge in gasoline prices after the attacks on oil production facilities in Saudi Arabia could undermine that phenomenon and increase the risk of a recession. 'It's clearly not a positive, and it adds a negative to the outlook,' said Steve Blitz, chief United States economist at T.S. Lombard, an independent research firm. 'It's another straw on the camel’s back.' Monday's nearly 15 percent spike in oil prices to $62.90 a barrel isn’t big enough to bring on a recession - it only returns crude prices to where they were this spring. Monday's jump is expected to add roughly 20 cents to gas prices, which now average $2.56 a gallon nationally, said Tom Kloza, global head of energy analysis for the Oil Price Information Service. But a shock in the form of a rapid $20 or $30 a barrel jump in oil prices would have a bigger economic impact. 'At that level, the consumer takes a significant hit,' said Ethan Harris, head of global economics and research at Bank of America Merrill Lynch. A $25 a barrel increase in oil prices, the kind of move analysts cite as a potential threat to the economy, would add 50 cents to the cost of each gallon of gas. That would mean an extra $45 in monthly spending for the typical family....The biggest risk to consumers - and the economy itself - would be a significant military conflict between the United States and Iran. Businesses, already cautious about spending, would pull back further. Consumers would likewise retreat."