Rapidly rising oil and gas prices show no signs of letting up
NEW YORK
The price of oil surged higher and showed no signs of halting its rapid climb a week after the U.S. and Israel launched major attacks on Iran that escalated into a war in the Middle East .
The conflict, in which nearly every country in the Middle East has sustained damage from missiles or drone strikes, has left ships that carry roughly 20 million barrels of oil a day stranded in the Persian Gulf, unable to safely pass through the Strait of Hormuz, the narrow mouth of the Gulf that is bordered on its north side by Iran.
The shipping disruption and damage to key Middle East oil and gas facilities has interrupted supplies from some of the world's largest oil producers. Kuwait, for example, said on March 7 that it would reduce its oil production as a “precautionary” measure due to the war, which could jolt global energy markets even further.
Oil prices surpassed $90 a barrel on March 6, with American crude settling at $90.9, up 36 percent from a week ago, and Brent, the international standard, climbing 27 percent over the course of the week to land at $92.69.
The fallout is ratcheting up what consumers and business will pay for gasoline, diesel and jet fuel, with some drivers already feeling it at the pump.
President Donald Trump said on March 2 that the U.S. expected its military operations against Iran to last four to five weeks but has “ the capability to go far longer.”
“The more news we get, the more it seems like this is going to last a really long time,” said Al Salazar, head of macro oil and gas research at Enverus.
The price shocks were felt even more heavily in Europe and Asia, markets that rely more heavily on energy supplies from the Middle East. Diesel prices doubled in Europe, and jet fuel prices rose by close to 200 percent in Asia, according to Claudio Galimberti, chief economist at Rystad Energy.
Energy prices climbed throughout the week as Iran launched a series of retaliatory attacks, including a drone strike on the U.S. Embassy in Saudi Arabia, and the conflict widened. Iran also hit a major refinery in Saudi Arabia and a liquefied natural gas (LNG) facility in Qatar, halting flows of refined products and taking about 20 percent of the world’s LNG supply offline.
“We keep seeing news of vessels being hit or refineries or pipelines, so the list is very long,” Galimberti said. As a result, roughly 9 million barrels of oil per day are off the market because of facilities being hit or producers taking precautionary measures, he said. “Right now, with all of this shut in, we are in a situation of extreme deficit.”
The U.S. is a net exporter of oil, but that does not mean it is immune to increases in the price of oil or gasoline, or that its producers can just make up the difference.
Oil is traded on global markets, so even the oil produced in the U.S. has risen in price based on what's happening in the Middle East.
In addition, the U.S. can't simply turn all of its crude oil into gasoline. That's because most of the oil produced in the U.S. is light, sweet crude, and refineries on the East and West coasts are primarily designed to process heavier, sour crude. As a result, the U.S. exports some of its crude oil and imports some refined products such as gasoline.