Oil Rises, Gas Top $3 Nationwide as War Heats Up. What’s Next?
Oil prices traded higher on March 3 as the US-Israel-Iran war escalated, sending prices higher for some of the staples that American consumers rely on.
Brent crude, the global benchmark and the metric most affected by the Middle East conflict, jumped 9 percent to trade near $85 a barrel on Tuesday morning, its highest level in 18 months and up nearly 25 percent in just a few days.
All eyes are on the Strait of Hormuz, through which about 20 percent of all the world’s oil flows, and which has been successfully choked by Iranian forces.
Although prices have been rising since the strikes began, it appears that the intensity of the price hikes on Monday and Tuesday could surprise the markets, said Rachel Ziemba, an independent energy analyst and senior consultant at the Center for a New American Security.
“If anything, the transportation disruptions that have begun to occur have been greater than the markets expected,” Ziemba told USA TODAY. Traders will be watching to see how the US responds on Tuesday to move the strait from “frozen and permanently blocked” to wide open, he said.
“If that doesn’t work out I think we could see prices go up to $90 or more,” he said.
How do oil supply chains affect consumers?
In a Tuesday morning report, petroleum analyst Patrick De Haan explained that the crisis is more important to global energy markets than 20% of the oil that flows through it.
“When risk rises near that tunnel, markets price in the possibility of faster flows,” he wrote. “Risk alone can act as a supply constraint.”
As previously reported, Venezuelan oil, which is effectively controlled by the US, cannot replace the lost production from the Middle East.
Pain at the pump and heat at home
After three days of conflict, oil-dependent consumer products are starting to feel the pinch.
As of mid-morning east coast time, the national average gasoline price was $3.089/gallon, according to GasBuddy.
And March 2 marks the biggest jump in one-day prices since March 4, 2022, which was the first day of Russia’s invasion of Ukraine, De Haan said.
Look for home heating oil costs to rise, Ziemba said, after a cold, snowy winter that saw many families spend more on heating costs than in previous years.
On the other hand, “spring is approaching,” Ziemba said, which means lower demand for heating oil. But on the other hand, De Haan points out, Americans are driving more as the warmer months continue.
Meanwhile, beyond the Strait of Hormuz, there are still concerns about electricity infrastructure, Ziemba said. Did the manufacturers who shut down their equipment as a precaution manage to keep everything secure? “The question is not only how long they stay locked up, but how quickly they can get back online,” Ziemba said.
In addition to certain products used by households, higher electricity prices are also raising inflation rates, Goldman Sachs analysts wrote in a March 2 analysis, even if they weigh economic growth.
While it is too early to say whether the US economy will suffer from “deflation,” the combination of low growth and high prices, the current situation may complicate the Federal Reserve’s decisions about whether to raise or lower interest rates.
This article first appeared in USA TODAY: Oil rises, gas costs $3 nationwide as war rages. What’s next?
Reporting by Andrea Riquier, USA TODAY / USA TODAY
USA TODAY Network via Reuters Connect
