May 21, 2018
Energy prices have risen in response to renewed tensions in the Middle East as traders weigh threats to regional oil supplies. Stock prices, on the other hand, have had a more muted response — a testament to the diminishing influence of Middle Eastern energy markets on the U.S.
Domestic U.S. oil production has roughly doubled just this decade, largely due to the revolution in shale drilling. Higher domestic production makes the U.S. economy less reliant on imported oil and therefore less sensitive to unrest overseas. More broadly, the U.S. economy is less sensitive to oil prices than in the past. Thanks to increased energy efficiency, the U.S. economy has grown by nearly eight-fold over the past 40 years, while oil consumption is essentially flat.
We believe energy prices would have to rise meaningfully higher before triggering an economic slowdown. One threshold in this regard would be gasoline above the psychologically important level of $4 per gallon — well above today’s national average of $2.82.
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