Oil Prices Surge Amid Iran Conflict
Elie Kohanim, a former deputy envoy at the State Department, shared insights on “The Bottom Line” regarding the ongoing discussions between U.S. officials and Iran concerning its nuclear program.
Since the onset of the conflict in Iran, oil prices have surged by over 40%, shaking up global energy markets. This spike raises concerns that U.S. drivers might face additional oil price hikes.
Analysts suggest that consumers probably haven’t felt the complete effect of rising oil prices just yet, as it often takes a few weeks for those changes to manifest at retail gas stations. Even if oil prices stabilize, gas prices might continue to climb temporarily.
“Typically, there’s a delay between oil prices and what customers end up paying at the pump,” explained Phil Flynn, a contributor for FOX Business and senior market analyst at Price Futures Group.
Michael Misch, a supply chain expert and professor at the University of Southern California, echoed this sentiment, stating that “the worst isn’t over,” and mentioned that “there’s more to come.” He believes prices will inevitably continue to rise within the system due to this lag.
Inflation Concerns Due to Ongoing Conflict
As reported by Goldman Sachs, inflation could increase further this year due to the ongoing war in Iran.
As of Friday, U.S. benchmark West Texas Intermediate crude oil was closing at $99.64 per barrel, following a tumultuous period of conflict. Although prices seem poised for their first weekly drop in over a month, they remain significantly elevated compared to pre-conflict levels.
This surge is partly due to supply disruptions resulting from U.S. and Israeli airstrikes, which analysts estimate may have diverted around 10 to 11 million barrels per day from the global market, tightening overall supply.
Geopolitical uncertainties are influencing market reactions. The United States has extended Iran’s deadline to reopen the Strait of Hormuz, a critical corridor for global oil traffic, while also contemplating further military actions. Should tensions ease, prices could decline; however, they are likely to stay above pre-conflict rates, with potential for increases if the situation escalates.
Despite current supply issues, Flynn noted that the impact has been relatively organized and manageable. Misch countered that a strong domestic oil production level in the U.S. is crucial in alleviating some of the pressure. “If it weren’t for our production, things would be much worse,” he pointed out.
Gas prices have already started to rise, and further increases are likely as previous hikes in oil prices take effect. The national average for regular gasoline is now around $3.98 a gallon, up about 6 cents from the previous week and nearly $1 higher than last month, according to AAA. Similar trends are reported by GasBuddy, showing a week-over-week increase of about 7 cents and an overall rise of more than $1 in the past month.
This price escalation reflects the previous surge in oil prices, and as gas prices typically lag behind crude oil fluctuations, analysts predict more upward pressure in the near future.
Seasonal factors also contribute, as the transition to more expensive summer fuel blends is in progress, raising refining costs and potentially keeping retail prices high even if crude oil prices stabilize.
As Misch aptly noted, “Prices shoot up like a rocket but decrease like a feather.”
