If oil trades above $100 a barrel for a while, the U.S. economy could be in for major shocks, according to Bank of America. Oil prices have surged since the U.S.-Israeli strikes on Iran last weekend, with West Texas Intermediate futures posting their biggest ever weekly gain, soaring 35%. The benchmark U.S. crude closed at $90.90 a barrel on Friday, close to the level that BofA global economist Claudio Irigoyen said will prompt “non-linear” effects in the economy. “If the status quo persists … we would fade (oil induced) inflation concerns,” Irigoyen wrote to clients in a report on Friday. “But an escalation driving oil prices persistently above $100 would become more concerning.” @CL.1 5D mountain West Texas Intermediate oil over the past five days. The economy is “more sensitive than usual to markets” because higher-income consumers are driving spending, Irigoyen said. This group is more likely to hold stocks , whose surge in recent years has helped buoy confidence and encourage spending. Cooler spending A sustained stock market downturn as a result of rising oil prices could push higher-income consumers to cool their spending, exacerbating the economic shock, Irigoyen said. Lower-income consumers will take an even harder hit as gasoline prices rise, the economist said. The average cost of a gallon of gas nationally rose the most in three days since 2008 , according to a Bespoke Investment Group analysis of AAA data. An average gallon of gas in the U.S. hit $3.25 on Thursday, 27 cents higher than the week before, the U.S. travel organization said. Households at the lower end of the income spectrum “are already struggling, so further erosion of their real spending power from surging energy prices could cause another leg up in delinquencies,” Irigoyen said of credit card and car loans and other types of fixed payments. “In turn, this could have a lasting impact on their ability to spend, if it constrains their access to credit.” More expensive energy could also create “a bottleneck” for artificial intelligence capital spending, Irigoyen said. Bank of America’s forecast for gross domestic product includes a tailwind from AI-related investment, such as the data center buildouts planned by the largest technology companies, like Microsoft and Google-parent Alphabet . But if any of those projects are delayed as a result of energy price increases, the economist said that would prove a headwind for growth this year. Ultimately, Irigoyen said if oil saw a sustained move above $100 per barrel, it would probably shave more than 0.60 of a percentage point off GDP growth. If oil prices doubled, a recession would likely ensue, he said.
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