Oil prices have proved volatile following the US strikes on Iran’s nuclear facilities — and you could soon be paying more to fill up your tank.
West Texas Intermediate and global benchmark Brent crude were sharply higher in Asian trading on Monday before losing ground later in the day.
That reversal may please President Donald Trump, who posted on Truth Social “Everyone, keep oil prices down.” He also called on the Department of Energy to “drill, baby, drill” — even though it does not do so.
Fluctuating oil prices could result in more pain for consumers’ wallets.
Denton Cinquegrana, chief oil analyst at OPIS, thinks that retail gasoline prices will “move higher” in the near term.
Despite rising geopolitical tensions, he told Business Insider that oil prices hadn’t caught up with levels reached last year. “The probability of prices staying here and not reacting to the next headline is pretty low.”
He expected US gas prices to approach $3.30 a gallon this week, up from about $3.22 on Monday. The price this time last year was $3.44.
Diesel averages $3.68 a gallon, per the AAA, compared with $3.80 a year ago and could also jump, Cinquegrana said: “A spike in diesel prices could hit consumers just as hard as higher gasoline prices as the transport of goods becomes more expensive.”
Spending power dented
Households in the US and Europe spend between 3% and 10% of their incomes on energy, which includes gasoline, heating oil, gas, and electricity, Carsten Brzeski, global head of macro at ING Economics, told BI.
“This means that the increase in oil prices has a direct impact on consumers, denting their spending power,” he said. “When it comes to gasoline, the impact is very imminent as companies pass higher market prices immediately on to their customers.”
Brzeski said that energy price rises could hit consumers “like a tsunami.”
Supply question
“For consumers it all boils down to whether we will see a material disruption in oil supplies from the Middle East,” said Clayton Seigle, senior fellow in the energy security and climate change program at the Center for Strategic and International Studies.
“The more the war with Iran escalates, the greater the chances this will occur, and higher crude prices will be passed on in the form of higher fuel prices like gasoline and diesel,” he told BI.
“However, oil prices have not increased much since the fighting began, because oil traders are sanguine about the risk of disruption.”
The US produces about 13 million barrels of oil a day and imports a further 3 million a day from Canada, lowering the risk of significant supply shortages.
The US also imports oil from countries including Mexico, Saudi Arabia, Iraq, and Brazil.
Lower-income pain
Ryan Sweet, chief US economist at Oxford Economics, said the US economy had slowed and was vulnerable to further setbacks such as a sudden rise in oil prices.
He told BI that lower-income households in the South are especially vulnerable to oil-price shocks because they spend more on gas as they drive more, have less of a “savings cushion” than peers in the North, and fuel makes up a larger share of their household spending.
That would leave them with less money to spend on other things. Sweet said “it’s a lot” for consumers between limp wage growth, a faltering labor market, tariffs, and now the prospect of higher gas prices.
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