US gas prices rise despite oil supplies
Gas prices in the United States rose significantly despite being one of the world’s leading oil producing countries. See how the attack on Iran affected oil infrastructure around the world.
The United States is the world’s leading oil producer. Only 8% of the oil we import comes from the Middle East.
So why have domestic oil and gasoline prices soared?
Oil prices spiked again on July 13 as new military attacks between the US and Iran reignited concerns about energy shipments through the disputed Strait of Hormuz. Brent crude oil futures, a market benchmark, rose $2.39, or about 3%, to $78.40.
U.S. gas prices averaged $3.87 per gallon on July 13, more than 70 cents higher than on this day a year ago, according to AAA. Gasoline prices are rising at a moment when the ceasefire between Iran and the United States appears to be thawing.
Why did gas prices here increase due to the Iran war?
As of January, the United States was producing more than 13 million barrels of crude oil per day. We export more oil than we import. But it also consumes a lot of oil, importing about 6 million barrels per day. Only a small portion comes from the Persian Gulf.
Based on these facts, you might think that a war in the Middle East would not affect U.S. gasoline prices. That would be a mistake.
“This is a global market,” Mark Zandi, chief economist at Moody’s Analytics, told USA TODAY earlier this year. “So oil is literally flowing towards the highest price. If a tanker can get a higher price in Malaysia than in Rio de Janeiro or in Rotterdam, then that tanker is going to go to Malaysia.”
When the United States began airstrikes against Iran, oil prices skyrocketed around the world.
According to one such index, the West Texas Intermediate Index, oil prices rose from about $67 on February 27 to about $105 on March 30.
Oil prices rose as the Iran war crippled regional supplies due to, among other things, the closure of the Strait of Hormuz, the sudden danger of crude oil shipments, and collateral damage to oil industry infrastructure.
The war threatened oil supplies to heavily oil-dependent regions of the Middle East, including parts of Asia and Europe. Prices have gone up everywhere, including here.
“Everyone is competing for the same barrel of oil,” James Cox, managing partner at Harris Financial Group, said in an interview earlier this year. “It doesn’t matter if it’s produced in Texas, or Iran, or Saudi Arabia, or Russia.”
The United States is the largest oil producing country on earth. But we are also the biggest consumers of oil. And American oil producers are part of the world market.
“We produce as much as we consume,” Zandi said. “But at the end of the day, producers here sell to whoever can offer them the highest price. They are businessmen.”
The West Coast is particularly vulnerable to Middle East oil shocks because more of its oil comes from the region. That’s one reason California gas prices have soared to $5.93 a gallon, said Kate Gordon, CEO of sustainability nonprofit California Forward.
“You don’t get anything east of the Rocky Mountains,” she told USA TODAY earlier this year.
This was not a repeat of the oil crisis of the 1970s
Californians and others can remember that the Iran war did not cause a gasoline shortage in the United States. Yes, there were long lines for gas, but they were mostly people looking to save a few bucks at Costco.
This is a far cry from the oil crisis of the 1970s, which led to rationing, price controls, shortages, a national 55 mph limit and long lines at gas stations across the country.
Economists say that for American consumers, the Iran war has been more of a hardship than a crisis. Motorists now pay more for the gasoline they purchase. Oil companies made more money by selling more oil.
Some other countries heavily dependent on oil from the Middle East have introduced rationing, four-day working weeks and remote working, and urged people to use less air conditioning and take more public transport.
“I would say the U.S. economy is somewhat immune to shocks on the net, because we are a large supplier country,” Nikolai Rusanov, a professor of finance at the Wharton School at the University of Pennsylvania, said in an interview earlier this year. “But that doesn’t help the consumer.”
When will gas prices drop?
Gasoline prices have fluctuated in recent months and remain high even after news of an uneasy ceasefire on April 8. Even if the ceasefire holds, oil and gasoline prices will remain elevated unless some new source comes online, Cox said.
The Iran war damaged or disrupted oil infrastructure in the Middle East. Some “will take years to rebuild,” Gordon said. Meanwhile, global oil supplies will remain tight.
“We can’t go back to how things were before,” Zandi said. “At least not this year.”
Contributed by: Reuters
