America is an oil exporter. Why does a Mideast war raise US gas prices?
On Monday, top officials from the United States and six other industrialized nations, known as the Group of 7, signaled that they were not yet worried about running short of fuel.
Written by Emmett Lindner
The price of gasoline in the United States rose again Tuesday, to an average of $3.54 a gallon, according to data from the AAA motor club, raising the cost of a fuel many Americans purchase frequently.
That’s an increase of 19% since the United States and Israel attacked Iran on Feb. 28, inciting a conflict that has engulfed oil production, storage and shipping from the Persian Gulf to the rest of the world.
In financial markets, concern that oil shipments from the region won’t resume soon has lifted the price of crude oil — the largest factor in the cost of gasoline — about 24% in the same period.
The gains show just how vital the Gulf region is to global energy supplies — and how interconnected global energy markets are, even if the United States produces plenty of oil.
In November the cost of crude oil accounted for about 50% of the price of a gallon of regular gasoline, according to the most recent estimate from the Energy Information Administration.
Refining and distribution by big energy companies and taxes account for most of the rest, which is why prices vary regionally. Station owners have a little wiggle room to set the price they charge, usually just a few cents per gallon.
Oil, no matter where it comes from, is priced largely on global supply and demand. Prices can change quickly when supply is cut off by wars or weather, or if demand rises or falls.
The price that American refiners pay is underpinned by benchmarks set in the commodities markets. The two main ones are Brent and West Texas Intermediate, but there are many different oil prices across the globe — determined by where it’s produced and how far into the future it’s expected to be delivered.
By any measure, oil prices have surged: West Texas Intermediate futures are 30% higher than before the attacks began.
“When there’s a supply disruption in the Middle East, that raises prices for every barrel of oil in the world,” said Christopher Knittel, associate dean for climate and sustainability at the Massachusetts Institute of Technology. “Those price increases then trickle down to products that use oil, gasoline being the most relevant one.”
Yes, but not all American-produced oil can be easily used by American refiners. The United States is a net exporter of petroleum products, which include gasoline, diesel, jet fuel and propane, but it still imports millions of barrels of crude oil.
In December, the United States imported about 200 million barrels of crude oil, according to the Energy Information Administration. That same month, it exported more than 350 million barrels of petroleum products, including 128 million barrels of crude oil.
Fuel made from imported oil often winds up in US gas stations. The type of oil produced in the United States tends to be higher-quality, so-called sweet oil, but domestic refineries are set up to handle heavy and sour oil. It is often more cost-efficient to sell the sweet and buy the heavy.
It would be expensive and difficult to reconfigure refineries, said Willy Shih, an international trade expert at Harvard Business School.
Also, a federal law called the Jones Act requires goods shipped between US ports to be carried on American-made and operated vessels, which can sometimes make it more efficient for refiners to import oil than moving it within the country.
Refineries in New Jersey, for example, might import oil from Algeria or Nigeria instead of buying it from Texas.
“You say, ‘Well, how can that make sense?’” Shih said. “Because that was the most efficient way of transporting it.”
Energy experts generally say presidents have little control over oil prices, but the United States does have the Strategic Petroleum Reserve, which can hold up to 714 million barrels of crude. In 2022, as gas prices spiked after Russia’s invasion of Ukraine, President Joe Biden released millions of barrels from the stockpile to help tamp down prices.
But any effect from such sales will likely be temporary. Another option, drilling more, takes time.
“Let’s just say you wanted to open up some environmentally fragile areas up for oil drilling to respond to this oil shock,” Knittel said. “Those barrels of oil aren’t going to get online for upward of six months.”
On Monday, top officials from the United States and six other industrialized nations, known as the Group of 7, signaled that they were not yet worried about running short of fuel.
President Donald Trump has also roiled markets with conflicting messages about the war. He said in a Monday phone interview with a CBS News reporter that the war “is very complete, pretty much.”
A few hours later he warned of even more aggressive action if Iranian leaders tried to cut off the world’s energy supply.
This article originally appeared in The New York Times.
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Written by Emmett Lindner
The price of gasoline in the United States rose again Tuesday, to an average of $3.54 a gallon, according to data from the AAA motor club, raising the cost of a fuel many Americans purchase frequently.
That’s an increase of 19% since the United States and Israel attacked Iran on Feb. 28, inciting a conflict that has engulfed oil production, storage and shipping from the Persian Gulf to the rest of the world.
In financial markets, concern that oil shipments from the region won’t resume soon has lifted the price of crude oil — the largest factor in the cost of gasoline — about 24% in the same period.
The gains show just how vital the Gulf region is to global energy supplies — and how interconnected global energy markets are, even if the United States produces plenty of oil.
In November the cost of crude oil accounted for about 50% of the price of a gallon of regular gasoline, according to the most recent estimate from the Energy Information Administration.
Refining and distribution by big energy companies and taxes account for most of the rest, which is why prices vary regionally. Station owners have a little wiggle room to set the price they charge, usually just a few cents per gallon.
Oil, no matter where it comes from, is priced largely on global supply and demand. Prices can change quickly when supply is cut off by wars or weather, or if demand rises or falls.
The price that American refiners pay is underpinned by benchmarks set in the commodities markets. The two main ones are Brent and West Texas Intermediate, but there are many different oil prices across the globe — determined by where it’s produced and how far into the future it’s expected to be delivered.
By any measure, oil prices have surged: West Texas Intermediate futures are 30% higher than before the attacks began.
“When there’s a supply disruption in the Middle East, that raises prices for every barrel of oil in the world,” said Christopher Knittel, associate dean for climate and sustainability at the Massachusetts Institute of Technology. “Those price increases then trickle down to products that use oil, gasoline being the most relevant one.”
Yes, but not all American-produced oil can be easily used by American refiners. The United States is a net exporter of petroleum products, which include gasoline, diesel, jet fuel and propane, but it still imports millions of barrels of crude oil.
In December, the United States imported about 200 million barrels of crude oil, according to the Energy Information Administration. That same month, it exported more than 350 million barrels of petroleum products, including 128 million barrels of crude oil.
Fuel made from imported oil often winds up in US gas stations. The type of oil produced in the United States tends to be higher-quality, so-called sweet oil, but domestic refineries are set up to handle heavy and sour oil. It is often more cost-efficient to sell the sweet and buy the heavy.
It would be expensive and difficult to reconfigure refineries, said Willy Shih, an international trade expert at Harvard Business School.
Also, a federal law called the Jones Act requires goods shipped between US ports to be carried on American-made and operated vessels, which can sometimes make it more efficient for refiners to import oil than moving it within the country.
Refineries in New Jersey, for example, might import oil from Algeria or Nigeria instead of buying it from Texas.
“You say, ‘Well, how can that make sense?’” Shih said. “Because that was the most efficient way of transporting it.”
Energy experts generally say presidents have little control over oil prices, but the United States does have the Strategic Petroleum Reserve, which can hold up to 714 million barrels of crude. In 2022, as gas prices spiked after Russia’s invasion of Ukraine, President Joe Biden released millions of barrels from the stockpile to help tamp down prices.
But any effect from such sales will likely be temporary. Another option, drilling more, takes time.
“Let’s just say you wanted to open up some environmentally fragile areas up for oil drilling to respond to this oil shock,” Knittel said. “Those barrels of oil aren’t going to get online for upward of six months.”
On Monday, top officials from the United States and six other industrialized nations, known as the Group of 7, signaled that they were not yet worried about running short of fuel.
President Donald Trump has also roiled markets with conflicting messages about the war. He said in a Monday phone interview with a CBS News reporter that the war “is very complete, pretty much.”
A few hours later he warned of even more aggressive action if Iranian leaders tried to cut off the world’s energy supply.
This article originally appeared in The New York Times.
