WICHITA, Kan. (KSNW) – Gas prices in Wichita have started to climb.
According to AAA, prices in the Wichita are average around $2.34 for a regular gallon. It is up from yesterday when prices were at $2.26 a gallon. In Kansas, the average for a gallon of gas is $2.37, up from $2.34.
Prices spiked Monday by more than 14%, their biggest single-day jump in years, but retreated Tuesday, reversing some of the increase. U.S. oil fell nearly 5% to $59.96 a barrel, while Brent, the international benchmark, dropped 5.3% to $65.34.
Tuesday’s reversal in prices came as Saudi Arabia’s energy minister reported that 50% of the production cut by the attack had been restored. Prince Abdulaziz bin Salman said full production would resume by the end of the month.
Even before Tuesday’s reversal in prices, economists downplayed the prospect that the price spike could send the economy reeling. After all, Monday’s surge only put prices back where they had been in May.
The drone attack knocked about 5% of the world crude supply offline. Oil prices have been trending mostly lower since spring because of concern about weak demand due to slowing economic growth.
Analysts say oil prices did not fully account for the risk posed by tension in the Middle East, but they will now. Iranian-backed Houthi rebels in Yemen claimed credit for the drone strike on Saudi oil facilities, but the Trump administration blamed Iran itself. The attack exposed the vulnerability of Saudi Arabia’s oil infrastructure.
Higher oil prices mean more costly gasoline, and that will sap consumers’ ability to spend on clothes, travel and restaurant meals. It will hit people who drive for a living.
Brian Alectine, a New York-based driver for the ride-hailing apps Lyft and Juno, said a 5- or 10-cent bump in the price of gasoline wouldn’t be too bad, but an increase of 25 cents a gallon would make it hard to earn a profit after expenses, including the monthly rent on the car he drives for work.
“The more you drive, the more gas you use,” Alectine said. “It will have a big impact.”
AAA said the nationwide average price of gasoline could rise 25 cents this month. Patrick DeHaan, an analyst for price-tracking app GasBuddy, predicted an increase of 10 to 20 cents a gallon. He saw reports of price spikes and people rushing to top off their tanks.
“I’m not sure where this panic is coming from,” DeHaan said. “There will be an increase, but prices will still remain over a dollar cheaper than they were earlier this decade.”
Any drag on the economy from lower consumer spending would be at least partially offset by increased investment in oil and gas production, according to several leading economists.
Gregory Daco, chief economist at Oxford Economics, estimated that the net effect could be a decline of about one-tenth of a percentage point in U.S. economic growth, which was 2.0% in the second quarter.
“An oil price shock will weigh on consumer spending and will add a further strain on the global economy, but we’re not talking about a major price shock at this level,” he said, while acknowledging that the situation could escalate if tension increases between the U.S. and Iran – a major producer whose output has been greatly squeezed by Trump administration sanctions.
U.S. crude poked above $100 a barrel in stretches between 2011 and mid-2014, yet the economy did not fall into recession. Brent peaked above $140 a barrel in July 2008, which some economists believe was an overlooked contributor to the Great Recession, which is more often linked to a financial crisis and, in the U.S., a housing-market bubble. Brent more than doubled in a few months after Iraq invaded Kuwait, another large oil producer, in 1990.
The United States was far more dependent on imported oil in 1990. Saudi Arabia remains the world’s biggest oil exporter, but the United States recently eclipsed both Saudi Arabia and Russia to become the world’s largest producer.
That makes the impact of higher oil prices on the U.S. economy much more mixed. Even as consumers and certain industries pay more for fuel, higher oil prices will be good for the U.S. energy industry and states where oil is produced, including Texas, New Mexico and North Dakota.
The stock market has highlighted which sectors will be helped or hurt by higher oil prices. On Monday, shares of oil producers surged, naturally, while stocks in airline, cruise and retail companies generally fell. Delivery giants UPS and FedEx dipped. They consume lots of fuel, and their business will suffer if higher energy prices cause consumers to reduce their online shopping.
For airlines, fuel is their second biggest cost behind only labor. Airlines were surprisingly adept at adapting to the last big run-up in fuel prices, but it takes them time to raise fares high enough to cover the extra cost.
American Airlines burned more than 4.4 billion gallons of fuel last year at a cost of nearly $10 billion, including taxes. On Monday, its shares fell 7.3%, more sharply than other carriers. Unlike most others, American doesn’t buy derivative investments as a hedge against fuel spikes, and its relatively heavy debt load leaves it vulnerable if the economy slows for any reason, including a jump in energy prices.
American estimates that over a full year, each penny increase in the price of fuel costs it $45 million. The price went up about 15 cents a gallon over the weekend.
If the fuel price increase persists for even a few weeks, analysts said, it could cause airlines to rethink their aggressive growth plans for 2020.
Ryan Sweet, an economist at Moody’s Analytics, said U.S. consumers are in good shape to handle a temporary increase in gasoline prices – with some savings, a tight job market and accelerating wage growth. Consumer psychology, however, can be difficult to predict.
“I don’t think this increase in oil prices … would be enough to single-handedly tip us into a recession,” he said. “The one cause for concern is that the consumer is carrying the economy. If the consumer starts to pack it in, the recession odds increase quite significantly.”
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