Filling up the gas tank could soon cost more as oil prices surge, as tensions escalate in the Middle East and Iran moves to cut off a critical oil route.
Brent crude, the leading global price benchmark, jumped nearly 9% to $79.31 per barrel on Monday. Meanwhile, West Texas Intermediate crude, the U.S. benchmark, rose 6.2% on Monday to $71.19 per barrel. Retail gas prices move about 2.5 cents for every dollar crude oil moves.
GasBuddy petroleum analyst Patrick De Haan warned some gas stations could be charging as much as 30 cents more per gallon by the end of the week if the rally continues. Analysts at Barclays said Brent crude could climb to $100 per barrel if supply concerns intensify. Currently, the median U.S. gas price is $2.79 per gallon. Haan says the national average is poised to reach the $3-per-gallon mark for the first time this year.
Oil markets are rattled after Iran moved to restrict traffic through the Strait of Hormuz, a critical shipping lane that carries roughly 30% of the world’s seaborne oil. Producers in Saudi Arabia, Iraq, the UAE, and Kuwait all use the Strait to ship oil to consumers across the world. According to Reuters, vessels in the region are receiving marine radio warnings from Iran’s Revolutionary Guard instructing ships not to pass through the Strait of Hormuz.
Iran has not officially confirmed the directive. Amid escalating tensions, insurers told ship owners they would be canceling policies and raising coverage prices for vessels traveling through the strait. The Financial Times reported that the price for a ship traveling through the strait was about 25% of the ship’s value, but is now about 37.5% of the ship’s value. So a voyage that cost $250,000 through the strait last week would cost $375,000 this week.
In response to the uncertainty, several oil companies have paused shipments of crude oil and fuel through the waterway. Prolonged disruption could push global energy prices even higher.
Former Energy Secretary Rick Perry, on Fox Business, praised President Donald Trump for increased domestic energy production that could help offset rising fuel costs. “Thanks to Donald Trump and the American oil and gas industry, we are producing more oil and gas than ever in history. And we will continue to do that. And given the signal, Americans and our allies, for that matter, can really develop a lot of oil and gas. We’ve got a lot of export facilities along the Gulf Coast of America.”
He added that while Iran can disrupt shipments in the Strait of Hormuz, he does not believe Iranians have the military capability to fully shut down the strait. “They don’t have the resources. They don’t have the Navy. They do not have the military force to be able to shut the Strait of Hormuz right now.”
President Trump said on Monday that the U.S. will continue strikes on Iran in the coming weeks. “Right from the beginning, we projected four to five weeks, but we have the capability to go far longer than that,” added the President.
