Amid talk of oil ‘collapse,’ prices are up 73 percent in 3 months

Media organizations and analysts who follow the oil industry have been playing their sad fiddles for companies that once posted jaw-dropping profits. Stories seldom focus on the global benefit that low oil (and gasoline prices) provide to consumers, who have enjoyed a $3 trillion “transfer of wealth” since oil was at $115 two summers ago. 

Instead, stories use words like “collapse,” “plague” and “anemic” to trace the arc from that $115 a barrel to under $28, in January of this year. The fallout continues unabated: More layoffs and bankruptcies are coming, and the U.S. oil-rig count has slipped to a six-year low, at 332.

But in the midst of all this gloom, prices have been quietly surging again: On Friday, Brent crude futures closed at $48.13. That’s a 72.6 percent increase from $27.88 on Jan. 20. Brent rose 21.5 percent in April alone, the largest monthly spike since May 2009, according to Reuters.

Brent

From Bloomberg Markets

Pontification was rampant Friday, as it always is, but the truth is, few experts saw this coming, just as few among them predicted the plunge. A survey by Reuters showed that OPEC production in April rose “to its most in recent history,” and there’s still a worldwide oversupply of crude. The world is pumping about a million barrels a day more than it needs.

So there’s no sufficient explanation for the wild price swings, as usual. Oil, like many volatile commodities, doesn’t need a good reason to rise and fall. Which might be why consumers aren’t rushing out and spending the windfall they’ve enjoyed from the plunge. As Allison Schrager wrote in Quartz last week, consumers might not trust that prices will stay low very long:

An oil price shock is like a shock to your income. If prices fall, it’s a good shock; a bad one if they rise. Either way, spending behavior should change when a shock happens. But how much depends on a couple factors. The first is whether or not the shock was expected. Second, whether or not the change is temporary or permanent.

When an income shock is a surprise, people have less confidence it will last, or may fear another shock is coming soon. Since oil prices have trended up since the 1980s, the recent dramatic fall was highly unexpected, so it’s possible consumers don’t totally trust that prices will stay low.

And yet the rosy predictions continue. The U.S. Energy Information Administration predicts drivers will pay an average of $2.04 per gallon for gasoline this summer, the lowest summer average since 2004. But that hinges on oil being a lot cheaper than it is right now.

The EIA points to low Brent oil prices as a reason for significantly lower gas prices and predicts Brent crude oil will average $35 per barrel this summer, marking a $22 per barrel decrease from last summer’s prices.

Families who have to plan out a budget deserve better than predictions based on magical thinking. They need a stable, reliably low price for the fuel they use every day, and the only way to achieve that is by making alternatives more widely available. Now, before the next spike makes the “plunge” look like a mirage.

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