Oil: Price shock impact on US growth – Commerzbank

Commerzbank economists Bernd Weidensteiner and Christoph Balz assess how the recent surge in Brent and WTI prices affects the US economy. They stress that the United States is structurally less vulnerable than in the 1970s thanks to lower oil intensity and higher domestic production. Their base case assumes a short-lived war-related spike, with Oil settling near $80 and only a temporary dip in US growth.

US resilience to higher crude prices

"In the wake of the war in Iran, the price of Brent crude oil has risen from just under $70 per barrel to as high as $115 in a matter of weeks – an increase of about two-thirds. Hopes for a swift end to the conflict have recently pushed the price back down to around $100. However, it remains to be seen whether the worst is over."

"However, the U.S. economy has changed significantly since the first oil crisis, reducing its vulnerability to an oil price shock. For many years, U.S. oil demand grew in tandem with the overall economy. After 1973, however, a decoupling took place."

"In addition, the U.S. is significantly less dependent on oil imports than it was just a few years ago. Thanks to the revolution in extraction methods (“fracking”), domestic oil production has seen an unprecedented surge over the past 20 years. Net crude oil imports fell to about 2 million barrels per day (from just over 10 million around 2005)."

"This does not mean, however, that the U.S. can decouple itself from rising oil prices; after all, this is a global market price. Nevertheless, higher oil prices do not reduce the overall purchasing power of the US economy: What consumers lose at the pump, domestic producers gain."

"In our base scenario, we assume that the war will end in late May and that the oil price will then fall rapidly again, even if it is likely to remain higher than before the war at $80."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)