Iraq civil war fuels higher gas prices

The Iraq civil war is fueling higher pump prices in the U.S.  The national average price for regular unleaded gasoline rose to $3.68 per gallon Friday, up three cents from one week ago.

Friday’s average is four cents higher than one month ago and eight cents higher than year ago prices.  After falling for nine straight days, the national average has increased for nine consecutive days for a total of about three cents per gallon as violence in Iraq has intensified.  Gas prices often decline in June, with the national average falling the previous three years at an average of approximately 20 cents per gallon. The recent turmoil in Iraq is likely to prevent that trend from repeating this year.

Much of the attention of global market watchers has shifted from Ukraine and Russia, to widespread violence in Iraq.  Turmoil in Iraq helped crude prices rally last week, notching their biggest weekly gain this year, with investors weighing the potential for supply disruptions.  So far, the bulk of production, which occurs chiefly in the nation’s southern region, seems to have suffered little to no impact from fighting in the north.  According to the Energy Information Administration (EIA), Iraq has the fifth largest proven oil reserve in the world and is the second largest producer of crude oil in the Organization of the Petroleum Exporting Countries (OPEC). Markets will continue to monitor the conflict closely due to the potential for violence to spread to neighboring oil producing nations, and the overarching regional foreign policy implications associated with an Iraqi civil war.  Crude oil prices remained solidly above $106 per barrel this week, topping $107 per barrel on Tuesday.  The commodity settled at $107.26 Friday, easily topping $107 per barrel in a rally that in two weeks vaulted prices more than $5 per barrel and marking the 29^th straight settlement above $100 per barrel.

In its weekly report, the EIA noted that U.S. crude oil stocks dipped by 580,000 barrels to 386.3 million barrels, putting inventories 7.8 million barrels below last year.  Gasoline inventories rose by 785,000 barrels to 214.3 million barrels.  Gasoline demand bounced some 634,000 b/d higher to 9.258-million barrels per day (bpd), 417,000 bpd above the same week last year.  The gasoline demand number of 9.258 million bpd might be regarded as stunning, were it not for a similarly over-the-top level observed just before Memorial Day weekend.  The peak demand weeks tend to come just before and just after July 4, and one could reasonably project numbers in the 9.4-million to 9.5-million bpd neighborhood.

“Despite hopes for a less expensive summer and AAA’s forecast of declines in June pump prices, it looks like Americans are stuck paying above-average gas prices,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic.  “If the instability in Iraq continues, crude oil prices are expected to rise and Americans can expect to pay more at the pump, likely surpassing the spring peak ($3.70 on April 28), as more than two-thirds of a gallon of gasoline is made up of crude oil.

AAA has anticipated that drivers will pay relatively high prices this summer, ranging from $3.55 – $3.70 cent per gallon; however, this range may be higher if unrest in Iraq escalates or disrupts oil production in the region. Given the increase in crude oil prices to nearly a nine-month high, retail gas prices are likely to rise to or near the current 2014 high ($3.70 on April 28) in the coming days.

CURRENT AND PAST GAS PRICE AVERAGES

Regular Unleaded Gasoline (*indicates record high)