LIVE MARKETS-U.S. economy can't shrug of high oil prices as it did 15 years ago

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U.S. ECONOMY CAN'T SHRUG OF HIGH OIL PRICES AS IT DID 15 YEARS AGO

UBS analysts have had a stab at answering the question of why oil above $100 a barrel should be a concern for the U.S. economy, when prices were substantially higher from 2011-2014 and growth held up well.

Their answer, in short, is it was the shale gas boom of the early 2010s, which doesn't look likely to be repeated.

To give a size of the scale of that change, they point out that at the start of 2010, the U.S. mining sector -- largely oil and gas -- accounted for roughly 14% of industrial production.

But "y 2012-2013, it was generating well over half of total U.S. (industrial production) growth, with brief periods in which mining effectively accounted for all of it."

Can that happen this time round? They think not, especially if current oil prices are perceived as temporary.

The United States is already the world's largest producer of crude oil, with daily output running at around 13 million barrels per day, followed by Saudi Arabia and Russia, with around 10 million bpd each.

That means "the U.S. is unlikely to see anything resembling the 2011-2014 shale-driven supply response to offset the net income erosion that is likely to hit consumers."

For completeness they also flag a few other differences between then and now -- "today's labour market is weaker, households are more liquidity constrained, and the inflationary impulse is sharper, reflecting a much faster run-up in prices."

(Alun John)

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