Politics is priming the pump for higher gasoline prices

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Although you may not pay a lot of attention to geopolitical goings-on, trouble in the Middle East — especially U.S. tensions with Iran, which, incidentally, is not one of Saudi Arabia’s favorite countries, either — may have a consequence on your disposable income. As tensions grow there and elsewhere, so do the odds of higher gasoline prices. Here’s why:

Iran:According to the U.S. Energy Information Agency (EIA), “the Strait of Hormuz is the world’s most important oil transit chokepoint.” In 2016, 18.5 million barrels of oil per day passed through the strait between Iran and Oman. What would one day’s interruption mean? The U.S. alone consumes 391 million gallons of gasoline per day, derived from 9.3 million barrels of oil. There have been weeks of saber-rattling by both the U.S. and Iran, culminating in intelligence showing Iran’s Revolutionary Guards loading missiles onto small boats. In a worst-case scenario, those missiles could be fired, either in anger or in miscalculation, at oil shipping or U.S. Navy vessels. Either way, the Strait of Hormuz would be closed for business. And even as it stands now, the tension alone has driven up crude oil prices.Venezuela:This nation’s long struggle under President Nicolas Maduro, whom the U.S. regards as illegitimate, has been at an extreme for months. U.S. sanctions on PDVSA, Venezuela’s state-owned oil company, are having an effect, not the least of which are long lines of Venezuelans waiting for scarce gasoline in the oil-rich country. In 2018, according to the EIA,Venezuela as recently as three years ago exported 29 million barrels of oil per month to the United States. So long as Maduro hangs in there, you can write off Venezuela as a source for U.S. consumers.

Saudi Arabia/OPEC:You’ve probably been happy with the comparatively cheap gas of late, although it has crept up: According to GasBuddy, since the start of the year gas prices have increased, on average, 67 cents per gallon. During the same period in 2018, that was a 33 cent rise; a penny in 2017; and 22 cents in 2016. One reason for the increase — and why the EIA has just increased its oil price forecast in May — is because OPEC wasn’t happy with falling prices of crude that led to the low prices at the pump. The OPEC countries decided in December 2018 to decrease output to raise prices. Many — including the EIA — didn’t think that would hold, but now the EIA admits “compliance with these cuts has been more effective than EIA initially expected.” So while they thought that there would be a decrease in output of 1 million barrels of oil per day in 2019, given the OPEC compliance the figure is now 1.9 million.

China:

On the not-exactly-bright side, the U.S. trade war with China may actually benefit gasoline prices — but not in a way you’d prefer. The trade war is bad in the macro sense: It could cause an overall slowdown in the global economy, but that means there would be decreased demand for petroleum.According to a report prepared by Trade Partnership Worldwide for an organization named “Tariffs Hurt the Heartland,” if the U.S. goes all-in and levies a 25% tariff on all Chinese imports, the cost to the average U.S. family of four would be $2,294 per year.At $3 per gallon, that $2,294 would have purchased 765 gallons of gas.All of that notwithstanding, there is another factor that could cause a bump in gas prices in the days and weeks ahead: greater demand.According to AAA, the Memorial Day weekend will see some 37.6 million Americans taking road trips, which is a record and a 3.5% increase over the number that hit the road last year. Even though AAA notes that gasoline prices are increasing, it suggests this won’t have much of an effect. Said Paula Twidale, vice president of AAA Travel, “Americans are eagerly anticipating the start of summer, and expensive gas prices won’t keep them home this Memorial Day weekend.”Her colleague Jeanette Casselano, AAA gas price expert, said, “When gas prices are expensive, travelers may shorten the distance of a road trip, eat out less or look for free activities.”

It’s not surprising that the folks at AAA are not alarmed: Rising gas prices are a rite of summer. But lump that on top of this year’s entanglements with several of the globe’s biggest oil producers? That could prove to be a bit much.


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