Oil prices are up but a recession isn't looming: Nancy Lazar
Cornerstone Macro chief economist Nancy Lazar argues oil price increases in wake of strikes at a Saudi facility are likely too small to cause an economic slowdown.
Oil prices may be soaring, but the long-term impact on the United States economy and consumers is likely to be limited, according to one economist who said that a recession is not in the offing.
Attacks on Saudi oil fields and refineries have hit the global economy hard, with oil prices up 20 percent on Monday. Those concerns hit markets on Monday, with the three indexes all showing substantial losses in morning trading.
But a long-term decline in the markets, which have rebounded in recent weeks, is not likely, according to Nancy Lazar. The founder of Cornerstone Macro told FOX Business' Maria Bartiromo on Monday that the indicators aren’t there for widespread panic or concern.
“So far, quite frankly, I would say the increase in oil prices is not going to be a game-changer for the US economy,” Lazar said. “You need to see something up well over $100 [a barrel] for a sustained period of time, based on what I went and looked back yesterday, to really push the economy into a recession.”
Bartiromo pushed Lazar on if she thinks the Saudi attacks would trigger a worldwide decline in the markets.
“I’m not raising the odds of a recession, no,” Lazar said.
Instability in the oil markets is nothing new. The oil energy crisis of the 1970s that went into the next decade saw oil prices triple over a five-year period of time, cresting at $37.28 in February of 1981. Similar spikes have taken place during the Gulf Wars and other moments of supply uncertainty.
Smoke fills the sky at the Abqaiq oil processing facility on Saturday, Sept. 14, 2019 in Saudi Arabia. Drones claimed by Yemen's Houthi rebels attacked the world's largest oil processing facility in Saudi Arabia and a major oilfield operated by Saudi …
Part of the reason for confidence among economists like Lazar and others is the natural resources the United States is currently sitting on as well as their own reserves.
According to a June study by Rystad Energy, the United States currently has access to 293 billion barrels of recoverable oil resources within its borders, the highest number in the world (overtaking Saudi Arabia this past summer). But in the immediate, the Strategic Petroleum Reserve (SPR) can help offset any spikes to oil prices in the market and at the pump.
According to the Department of Energy, the United States holds reserves of 644.8 million barrels of crude oil.
Any decision by the president to release part of the reserves would mean that oil would hit the market within 13 days. The last time that the exchange was called upon for a release was in 2017 when Hurricane Harvey grounded all oil production in the Gulf of Mexico to a halt.
The total import protection, at full capacity, provides for 75 days of coverage for the United States economy. And with Saudi Arabia nearing a return to one-third of their oil production loss, the reserve is in a good place to potentially minimize any impact to the economy and consumers.
This Saturday, Sept. 14, 2019, satellite image from Planet Labs Inc. shows thick black smoke rising from Saudi Aramco's Abqaiq oil processing facility in Buqyaq, Saudi Arabia. Yemen's Houthi rebels launched drone attacks on the world's largest oil pr …
There may even be the opportunity for the United States to turn the situation into an advantage, especially given the resources to weather the storm. Lazar notes that China, currently embroiled in a trade war with the United States, might become a potential market for America to sell its oil in the near-term.
“China was going to be buying at least our natural gas and over time to be sure,” Lazar said. “The United States ends up becoming that important, marginal supplier of oil to the world which will help to reduce the risk of economic activity.”