War Spilling Over to Retail Gas Prices

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Written by Daniel Graeber for IIR Energy Intelligence (Sugar Land, Texas)

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Summary

Retail gasoline prices in the U.S. jumped more than 7% in response to the escalation of fighting in the Middle East. Oil prices, however, took a breather after security proposals for Persian Gulf shipping.

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Pain at the Pump

With supply-side strains and a risk premium propping up crude oil prices, retail gasoline prices for U.S. consumers--who already are fretting over affordability issues--jumped more than 7% over the week, data show.

Travel club AAA put the national average retail price at $3.19 for a gallon of regular unleaded gasoline on Wednesday, up 7.2% from the same period last week. The increase was sparked by a rally in crude oil prices, which jumped after U.S. and Israeli forces took out Iran's Supreme Leader Ali Khamenei in a weekend airstrike, triggering widespread war in the Middle East.

The price for Brent crude oil, the global benchmark, was trending lower in early Wednesday trading after U.S. President Donald Trump proposed military escorts and insurance for vessels traversing regional waters. But Brent is still up more than 13% this week to trade near $81 per barrel.

"Oil prices have firmed as traders assess the potential for further escalation, and while fundamentals such as inventories and refinery activity remain important anchors, the risk of broader instability--particularly involving key transit routes--has injected fresh uncertainty into energy markets," wrote Patrick DeHaan, the senior petroleum analyst at GasBuddy.

The U.S. Energy Information Administration (EIA), the statistical arm of the Department of Energy, had forecast a national average retail price of $2.91 per gallon for the year in its monthly market report for February.

Reformulated Blendstock for Oxygenate Blending (RBOB), which represents the wholesale price for gasoline, averaged $1.81 per gallon in January. It was trading closer to $2.46 by early Wednesday.

There have been few refinery issues in the U.S. that would affect gasoline prices. Demand has remained strong so far. The EIA reported the total amount of refined petroleum products sent to the market over the seven-day period ending February 20, a proxy for demand, averaged 21.4 million barrels per day (BBL/d). That was a 5.4% increase over the prior week.

It'll be next week before the EIA publishes data for a period covering the start of the war in the Middle East.

By the Numbers

• $3.19 for a gallon of gas
• 1.5 million BBL/d in Iraqi production closed
• 292,000 BBL/d in Qatari refinery throughput offline

Few Domestic Refinery Issues

While domestic infrastructure is insulated from the conflict, commodity markets are global in nature. Various media reports on Wednesday reported the Ras Tanura Refinery in Saudi Arabia was targeted again.

The refinery, with a processing capacity of 555,000 BBL/d, was shut down Monday. An alert on the initial incident was distributed before the start of trading on Wall Street on Monday. Industrial Info continues monitoring the situation and will release updates for clients as more details become available.

Subscribers to Industrial Info's Global Market Intelligence (GMI) Petroleum Refining Plant Database can learn more about Ras Tanura from a detailed plant profile.

Elsewhere, a client alert on Wednesday noted that Qatar Petroleum closed its Ras Laffan Refinery, shutting in 292,000 BBL/d because of the war.

Subscribers can learn more about Ras Laffan from a detailed plant profile.

Shipping Remains Dangerous

While Trump's proposal for vessel security in the region is soothing markets, bottlenecks remain. Some 1.5 million BBL/d in Iraqi crude oil production is shut-in because of a lack of storage, RBC Capital Markets reported Wednesday.

Elsewhere, with few pipelines available to divert oil away from the Persian Gulf, production from nations like Kuwait could be stranded in the region.

The United Kingdom Maritime Trade Operations (UKMTO) Center, a regional risk monitor, reported Wednesday that a container ship moving east through the Strait of Hormuz was hit by an unknown projectile, causing a fire in the engine room.

Vessel Finder, a publicly available tracking service, still shows traffic moving in the region. The crude oil tanker Prudent Warrior is in the Persian Gulf after leaving the Port of Basra on Monday.

Key Takeaways

• As oil goes, so goes retail gasoline prices
• Bottlenecks are showing up in key shipping lanes
• U.S. offers maritime insurance, protection

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About IIR News Intelligence
IIR News Intelligence is a trusted source of news for the industrial process and energy markets, powered by Industrial Info Resources' Global Market Intelligence (GMI).

About Industrial Info Resources
Industrial Info Resources (IIR News Intelligence) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 250,000 current and future projects worth $30.2 trillion (USD).