- The Washington Times - Thursday, February 24, 2011

The White House on Thursday downplayed the danger to the economy from rapidly rising oil prices, which are flirting with $100 a barrel amid rising unrest in the Middle East, but many private economists worried that it might stifle this year’s much-anticipated revival of growth and jobs.

Whether the oil spike proves to be an obstacle depends on how high prices go and how long they stay there. The price of a barrel of premium crude jumped as high as $103 in New York trading Thursday morning, but by afternoon had fallen back to a little over $96.

Those were the highest levels since the oil price spike of 2008, which led to $150-per-barrel oil and $4-per-gallon gasoline and helped sink the global economy into recession.

The surge in prices this week was provoked by the cutoff of production of as much as 1.3 million barrels a day of premium crude from Libya amid an outbreak of civil war. Part of the rise also owes to fears that even larger oil producers such as Iran and Saudi Arabia could be engulfed in the spreading unrest.

At a minimum, economists say, the situation is a recipe for volatility in the oil market — and elevated prices — for some time to come.

Prices retreated abruptly in New York on Thursday after Saudi Arabia assured the markets that it would pump extra oil to make up for the Libyan shortfall and the White House put down a rumor that Libya’s autocratic leader, Col.Moammar Gadhafi, had been shot.

In electronic trading Thursday night, prices started to creep back up toward $100.

The price of premium crude in London has surged as high as $114 a barrel in the past week.

President Obama, in remarks before a panel of business leaders at the White House, said he was confident that the markets would “ride out” the unrest and that prices eventually would stabilize without doing lasting damage to the economy.

Treasury Secretary Timothy F. Geithner added that there’s little cause for worry because the world has substantial inventories and reserves of oil to cover the lost production from Libya.

Austan Goolsbee, chairman of the White House Council of Economic Advisers, also downplayed the potential for economic harm, saying the picture is much different from the oil crisis of 1979 because the nation is “substantially more energy-efficient” than it was then.

“The sensitivity of the economy to oil prices is not as great as it was in the past,” he told reporters at a breakfast sponsored by the Christian Science Monitor. “The impact of oil prices comes from long-run, sustained increases to prices, not from short-run variations.”

“Nobody likes to pay higher fuel costs,” Mr. Goolsbee said, but “anything like what we’re seeing so far neither we nor the private sector has forecasted that would derail our recovery.”

Many private forecasters were not as confident as Mr. Goolsbee suggested, and some warned of a potent threat to the economy.

“The fairly strong growth momentum the economy had when it entered the year suddenly hit a major speed bump,” said Bernard Baumohl, chief global economist at the Economic Outlook Group.

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