Navigation
Download the AMN app for your mobile device today - FREE!
  •  

Gas prices poised to jump after US attack on Iran, but don’t expect a big spike

Gas prices (Tewy/WikiCommons)

American gasoline prices could rise in the coming weeks over fears about the potential fallout from the U.S. killing of an Iranian military leader. And those price hikes could escalate if the conflict intensifies.

But with oil production strong in the U.S. and elsewhere, the effect on fuel is likely to be muted in the near term.

“We’re talking about making a nickel of an impact on gas prices over the next week,” says Patrick DeHaan, head of petroleum analysis at fuel-savings app GasBuddy.

To be sure, the American airstrike that killed the Iranian general, Qassem Soleimani, while he was visiting Iraq could trigger a chain of events that would have a greater effect on the price of gas.

“The severity of their response is what’s going to impact gas prices most,” DeHaan says. “This could really escalate from here on out.”

- ADVERTISEMENT -

If oil jumps more than $5 a barrel and gasoline follows it higher, the increase in prices could have a “pretty significant impact to consumers” says AAA spokeswoman Jeanette Casselano. Gas is made by refining crude oil.

U.S. oil futures prices rose 3.7% to $63.44 at 9:51 a.m. ET on Friday.

The national average price of gasoline reached $2.59 on Friday, up 3 cents from a week earlier, according to AAA.

Traders are bracing for the possibility that Iran will retaliate by restricting the flow of oil in the Middle East or potentially attacking production sites.

When a Yemeni rebel group attacked Saudi production in September, causing a temporary spike in global oil prices, U.S. officials blamed Iran. While Saudi production came back online within weeks, that attack was viewed as a revelation regarding Iran’s capacity to target foreign oil.

But perhaps the biggest threat is that Iran could use its military power to throttle access to the Strait of Hormuz, which connects the Persian Gulf with the Gulf of Oman.

“That’s where three-quarters of Middle Eastern crude oil is flowing through,” DeHaan says. “There are options to go around it, but you’re talking about probably a 30-day increase in time if you go around the Cape of Good Hope, South Africa.”

One thing that’s not a concern: access to Iranian oil. When the Trump administration canceled the Obama administration’s nuclear deal with Iran, it reimposed strict sanctions on Iran, blocking much of the country’s oil output.

That means any outages in Iranian oil won’t have much of an impact on prices.

What’s more, surging U.S. production has flooded the markets with oil, which has helped keep prices relatively low.

U.S. oil output spiked 38.6% from 8.84 million barrels a day in 2016 to 12.25 million in 2019 and is likely to rise to 13.18 million in 2020, according to the Energy Information Administration.

Also, Saudi Arabia, which is likely to be aligned with the U.S. against Iran, could ramp up oil output if Trump pressures the country to step in, DeHaan says.

“Don’t expect a sustained oil price rally,” UBS global chief investment officer Mark Haefele wrote Friday in a research note. “If the situation worsened, and oil supplies were disrupted, this could have broader economic and financial market impacts through a sharp rise in crude oil prices,” he continued, but added that “”We still expect an oversupplied oil market in 2020.”

Before the attack, petroleum analysts expected gas prices to remain relatively steady in 2020.

GasBuddy’s DeHaan projected that prices would average $2.60 nationally for the year, down from $2.62 in 2018.

___

© 2020 USA Today