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Gasoline prices have hit their highest level in several years, as the U.S. Navy blockades Iran’s ports, and Iran in turn threatens to attack any commercial ships passing through the narrow Strait of Hormuz. The halt to shipping in that vital waterway has kept much of the Middle East’s energy exports bottled up in the Persian Gulf, causing prices to soar. The national average price of regular unleaded reached $4.30 per gallon today, up 27 cents from just a week ago. Barring a sudden resolution to the crisis in the Persian Gulf, it looks like the national average will soon hit $4.50, and could threaten $5 as summer nears. Diesel prices are also up sharply, averaging $5.50 per gallon, which is almost $1.50 more than at this time one year ago. That spells higher costs to ship all manner of goods and materials.
Crude oil prices are trading near their highest levels since the war with Iran began on February 28. Benchmark West Texas Intermediate was recently trading near $105 per barrel, up roughly 50% from the start of the war. Until tankers can again pass freely in and out of the Persian Gulf, WTI figures to stay near $100 per barrel. If the fragile cease-fire between the United States and Iran breaks down and fighting resumes, WTI could soar even higher.
U.S. natural gas prices are largely unaffected by the shutdown of shipping in the Persian Gulf, even though the Middle East exports huge amounts of natural gas. America is the world’s largest gas producer, and also a net exporter, so physical shortages are not a concern here, unlike in Asian and European markets that rely heavily on the Middle East for gas. Benchmark gas futures recently traded at about $2.75 per million British thermal units, little changed since the war began. They may move higher once summer weather arrives and sparks stronger electricity demand, since gas is the top fuel for generating power in the United States. But until then, we look for gas futures to stay near or below $3 per MMBtu.
