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The summer driving season may just have gotten more expensive.
US and global crude oil prices are near six-month highs as the White House said Monday it would not extend exemptions to Iran`s oil sanctions that were set to end in May. The news triggered an immediate spike in oil prices and comes as gasoline demand seasonally rises as Americans prepare for summer road trips.
Beth Mosher. spokeswoman for AAA. which tracks gasoline prices. said based on the Iranian news. AAA forecasts nationwide gasoline prices to rise over $3 a gallon this summer. That’s 15 cents a gallon more than current prices and above last summer’s prices. she said.
The end to Iranian sanctions waivers throws uncertainty into a market already dealing with lower global supply due to agreed-upon production cuts by Organization of Petroleum Exporting Countries. Other Opec members are in trouble. too. US sanctions on Venezuela come into effect at month’s end. and renewed tensions in Libya threaten to disrupt their supply.
“President Trump’s decision to zero out Iran sanctions waivers represents the ultimate high-wire act for oil prices.“ said Helima Croft. global head of commodity strategy at RBC Capital Markets.
In November the US re-imposed sanctions on Iran. but allowed waivers to some of Iran’s biggest customers. including China and India. Iranian oil exports averaged more than 1.7m barrels a day in March. including nearly 628.000 barrels sent to China each day and more than 357.000 sent to India. according to S&.P Global Platts data. Oil-market participants expected those waivers to be reinstated. which is why the market was surprised by the White House’s statement “to bring Iran’s oil exports to zero“.
Countries that continue to buy Iranian oil will risk US sanctions. Iran responded to the news by threatening to close the Straits of Hormuz. the world’s busiest oil-transit lane. That would cut off about 20% of seaborne crude oil and products. Barclays said.
Donald Trump is betting that Saudi Arabia and other OPEC members make up for the shortfall.
