NEW YORK – U.S. consumers and corporations can cope with higher oil prices as long as crude prices stay clear of volatility, market strategists say.
In inflation-adjusted terms, oil prices remain well-below the roughly $90-a-barrel peak hit in the 1980s, according to calculations by the International Energy Agency (search).
"Oil prices on a real basis are not as expensive. The economy is more energy efficient. Volatile is more problematic than just high oil prices," said Chip Dickson, chief U.S. strategist at Lehman Brothers (LEH), speaking at the Reuters Investment Outlook Summit.
Oil prices have risen more than 27 percent this year, hitting a record high of $58.28 a barrel on April 4. U.S. crude futures on the New York Mercantile Exchange (search) on Friday hit a new record of $58.60 per barrel -- over the former record of $58.28 set on April.
"When energy prices rise, it is during that period (of rise) that we see a slowdown," said Abby Joseph Cohen, chief U.S. portfolio strategist at Goldman Sachs and Co (GS). "If energy prices stabilize at a certain level, the impact seems to abate a little bit as households and others adjust to that new level."
But Cohen said if prices jump dramatically above Goldman's near-term target range of $45 to $50, it could hurt consumers, particularly lower-income households, and that could hit the margins of discount retailers.
In March, Goldman Sachs said in a research report that oil markets have entered a "super-spike" period that could see 1970s-style price surges as high as $105 a barrel. Cohen said that is the level at which Goldman's analysts expect oil to be "totally disruptive."
Investors worry about the negative impact of oil prices on stocks but at least one market strategist said there's reason to relax.
"I don't think I would draw any kind of connection between equities in general and the oil market," said Rick Bensignor, executive director and chief technical strategist at Morgan Stanley.
While oil prices have risen about 70 percent over in the last year and a half, the S&P 500 index has also risen, although by a far lower 8.6 percent.
"Now you are talking longer term and clearly there is no correlation there. Crude, if anything, is stopping the stock market from being much higher," Bensignor said.
One of the main reasons high oil prices don't seem to send shockwaves through the U.S. stocks markets in recent years is the high services component in the U.S. economy and relatively efficient manufacturing processes, the strategists said. The services sector comprises about 80 percent of the U.S. economy.
"From a global standpoint we know that there are other countries more afflicted by higher energy prices than we are," Cohen of Goldman Sachs added. "I'd like to say that this is because the growth in our economy has come not from heavy duty, metal-bending manufacturing but from more sophisticated manufacturing that is not as energy intensive and also because a good deal of our growth has come from services."