The US government issued four separate reports mentioning high crude oil prices in the week ended June 10. It was not surprising that the first addressed the topic, since it was the Energy Information Administration’s latest Short-Term Energy Outlook.
But the subject’s presence in the other three suggests that oil prices still have a seat aboard the US economic express. Whether that seat is next to the throttle and brake is open to debate.
Let’s start with the EIA report. The government’s energy forecasters raised their 2005 average West Texas Intermediate crude oil price estimate by $1 to $53/bbl from a month earlier.
They said US inventories rose, partly from increased production by the Organization of Petroleum Exporting Countries. But while WTI’s price slipped to $47/bbl by May 19, it had recovered to $52 by the end of the month. EIA now projects monthly average WTI prices will stay above $50/bbl for the rest of 2005 and 2006.
Trade deficit
Next stop will be the Commerce Department and its international trade report for April. The report said the US trade deficit grew by $3.4 billion to $57 billion that month.
Crude oil was the second-biggest component among imports (behind automotive vehicles, parts, and engines) in this report. During April, Commerce said, imports grew 0.7% year-to-year to 313.8 million bbl. The cost (excluding duties, freight, insurance and other expenses) climbed 45.3% to more than $14 billion during the same period, the report said on p. 24.
Stop No. 3 is Federal Reserve Chairman Alan Greenspan’s June 9 testimony to the Joint Economic Committee of Congress. “A major economic development over the past year has been the surge in the price of oil,” he said.
Greenspan noted that the value of petroleum imports climbed to 1.8% of nominal gross domestic product (GDP) in 2005’s first quarter from 1.4% in the comparable 2004 period. “The alternating bouts of rising and falling oil prices have doubtless been a significant contributor to the periods of deceleration and acceleration of US economic activity over the past year,” he said.
White House view
One day earlier, the Bush administration updated its economic forecast and stuck by its earlier prediction of 3.4% growth in real GDP during 2005. It also cited “volatile energy prices” as it raised its forecast for inflation growth slightly to 2.3% for the year from 2.1% previously.
Harvey S. Rosen, chairman of the president’s council of economic advisers, noted that about 400 variables are considered in developing the administration’s outlook. “Certainly, increasing oil prices can create headwinds for the economy,” he told reporters.
Asked how much of a factor high oil prices were in the forecast’s original and new estimates, Rosen replied, “Well, in the [consumer price index] figure, the increase in oil prices did play a role.”
