Despite the rise in oil and gas prices, we'd say that the overwhelming consensus among Wall Street analysts is that it's not enough to do too much damage to the economy.

We rounded up a lot of sell-side opinions here.

Among the reasons for being optimistic: The fact that the inflation in oil prices is not being accompanied by inflation elsewhere, which eases some of the strain on household budgets.

We've seen a version of this chart a few times. It's a 6-year look at oil prices (red) and natural gas prices (blue).


Theoretically, the decline in natural gas prices helps a little.

Another reason for being sanguine is the rise of domestic energy, notably from shale. The oil import/trade imbalance isn't as large as it used to be (which is also due to the fact that Americans are driving less and less).

Goldman's top economist Jan Hatzius is the bearer of bad news in a new note titled: Despite Shale, We Worry About Oil.

It boils down to a few key points, which we summarize here:

  • Shale oil is a long-term story. The prospects are exciting, the corner has been turned in terms of domestic oil production, but it's not a gamechanger in this economy yet.
  • As far as shale gas goes, domestic consumers spend nine times as much on oil-based products as they do natural gas products, so the impact of a price change is 9 times as significant when it happens in the oil world.
  • Actually taking advantage of lower gas prices has proven to be very difficult. There aren't many areas where oil and gas are substitutes.
  • Most oil is imported, whereas most gas is domestic. So an decrease in gas prices is a decrease in someone else in America's income, whereas a rise in oil prices does drain national balances.

The bottom line, says Hatzius, is that it's not different this time.

A 10% oil price shock will shave 1/4-1/2% off GDP.

And though you might think there's been a big change in domestic energy boom in the US, the fact is that investment remains very tiny.

energy investmentGoldman Sachs

Add in the global supply problems (falling non-OPEC supply, etc.), and you have the recipe for a real, ongoing problem, and a threat to the speed of the recovery.