With U.S. motorists getting ready to hit the highway for the summer driving season, pump prices have been moving up sharply – topping $3 a gallon in several Western states, where transportation costs typically add to the retail price of motor fuel.
Nationwide, the price of a gallon of regular gasoline hit $2.96 this week, according to the Energy Information Administration. That’s up from $2.49 a gallon a year ago, a gain of 19 percent.
Drivers are beginning to feel the pinch, according to a government report Thursday on consumer prices. Gasoline prices jumped 3.0 percent in April, according to the Bureau of Labor Statistics, after falling 4.9 percent in March.
The spike in pump prices comes as refiners work off stocks of fuel blended for winter months and build supplies specially formulated for summer driving. But it’s costing those refiners more to buy the crude oil they need to make those new gallons.
Crude prices rose sharply this week to the highest level since 2014 on expectations that U.S. sanctions will crimp exports of Iranian crude. Analysts estimate that the new round of sanctions could cut Iran’s exports by between 200,000 and 600,000 barrels per day.
Trump’s decision about the Iran deal isn’t the only factor driving up oil and gasoline prices, however. Prices had already been rising as a strong global economy has kept demand high for gasoline and other refined products.
Crude oil production, meanwhile, has tightened as a global oil glut prompted a slowdown in drilling by Saudi Arabia and other major producers.
Oil production in Venezuela, once a major global supplier, also has fallen sharply as the nation’s economy continues to contract. Output was down by 25 percent in the first quarter of this year compared to 2017, according to Dan Smith, who follows the global commodity markets at Oxford Economics.
“The potential for oil prices to spike back towards $100 a barrel is no longer the distant threat that many had assumed a few months ago,” he wrote in a note to clients.
Some analysts think the rise in oil prices has the potential to cause a drag on the economy.
“An oil price increase is a hit to consumers in the form of higher gasoline prices, which means weaker spending on other items,” said Gregory Daco, chief U.S. economist at Oxford Economics. “The key question going forward will be what happens to oil production in Saudi Arabia.”
Saudi Arabia has promised to help offset the loss of any Iranian crude output, saying it “remains committed to supporting the stability of oil markets, benefiting producers and consumers alike.”
That’s one reason some analysts think fears of sharply higher prices may be overblown.
Oil market watchers also expect that American producers will also respond to higher prices by drilling more.
And it remains to be seen just how much impact the U.S. sanctions will have in keeping Iranian crude oil off the global market.
“China is Iran’s biggest customer, said Carl Weinberg, chief economist at High frequency Economics in a note to clients. “China’s oil importers and the government surely would be pleased to pay for oil in yuan, transacted through Chinese banks.