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Not long ago, it looked like oil prices were finally retreating, which would have been welcome news to drivers paying relatively high gas prices. Benchmark West Texas Intermediate crude oil had slipped from over $90 per barrel to about $82. But after the brutal attack by Hamas on Israel last weekend, the situation appears to have changed, with WTI rebounding to $86 per barrel.
While there is no immediate threat to oil production in the broader Middle East, we expect that the United States will tighten sanctions on Iran’s oil industry to punish Tehran for the support it provides to Hamas. And we expect any loss of Iranian oil figures to tighten the global oil market.
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Worldwide consumption was already running ahead of global output, with stockpiles of oil in storage being drawn down to make up the difference. So, we look for WTI to trade between $85 and $90 per barrel for now, and possibly shoot higher if the conflict escalates. The oil market is likely to be extra volatile for now.
Gasoline prices, which had been declining, are likely to perk up, at least a bit. The national average price of regular unleaded stands at $3.63 per gallon, down from $3.75 a week ago. The recent uptick in crude oil should start showing up at gas stations in the coming days, pushing the national average gas price back toward $3.70. If oil keeps rising, the price at the pump will, too. Diesel, now averaging $4.48 per gallon, is likely to turn higher as well.
Natural gas prices are not directly linked to the situation in Israel. But they have also been rallying recently. After spending most of the summer and early fall trading below $3 per million British thermal units, the benchmark gas futures contract was recently at $3.24 per MMBtu. That’s still relatively cheap, but with winter approaching, further price gains are possible. Stockpiles of gas in underground storage are ample for this time of year, and there is no sign of sharply colder weather in the immediate forecast across the parts of the United States that account for the bulk of gas consumption. Still, cooler weather will gradually add to demand. If the coming winter ends up being relatively cold, that could whittle down today’s healthy gas stockpiles quickly and put upward pressure on prices.
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