CLOSINGS: View Closings

What Trump's Iran decision means for oil and gas prices

President Donald Trump chose a dicey time to crack down on Iran, the world's fifth-biggest oil producer.Global...

Posted: May 9, 2018 12:13 PM
Updated: May 9, 2018 12:13 PM

President Donald Trump chose a dicey time to crack down on Iran, the world's fifth-biggest oil producer.

Global oil supplies were already getting tight before Trump vowed on Tuesday to exit the Iran nuclear deal and impose "powerful" sanctions on the OPEC nation.

Energy industry insiders say Trump's tough stance on Iran will probably keep oil and gasoline prices higher than they would otherwise be.

Iran ramped up its oil production by 1 million barrels per day after sanctions were lifted in early 2016. At least some of that oil will now be pulled from the market - at a time when oil prices are already rising because of production cuts by OPEC and Russia as well as instability in Venezuela.

Dan Eberhart, CEO of oilfield services company Canary LLC, drew a direct connection: "Withdrawing from the Iran nuclear deal will support higher oil prices."

Trump telegraphed the move, and oil prices shot up in recent weeks as traders anticipated it. Crude topped $70 a barrel this week for the first time in nearly four years. Hours before Trump's announcement, federal government forecasters raised their estimate for 2018 oil prices by 10.5% to an average of $65.58 a barrel.

Crude oil prices swung wildly on Tuesday, eventually climbing back above $70 a barrel later in the day.

Gasoline prices, which generally follow oil prices, have jumped to a national average of $2.81 a gallon, according to AAA. A gallon of gas went for $2.34 a year ago. The typical family will spend about $200 more this summer driving season, according to the Oil Price Information Service.

"It will be more painful for motorists than the past two years - but nothing close to 2011 to 2014 when it was $3.40 to $3.60 a gallon," said Tom Kloza, global head of energy analysis at OPIS.

Related: Oil prices swing wildly after Iran news

No one knows exactly how high prices will go. That will be determined by a range of factors, including how much Iranian crude is restricted by the sanctions and whether other major producers - such as the United States - fill the gap.

Saudi Arabia will 'mitigate' supply shortages

OPEC kingpin Saudi Arabia indicated it was ready to act. In a statement late Tuesday, the Saudi energy ministry said was "committed to supporting the stability of oil markets."

"The kingdom [will] work with major producers within and outside OPEC, as well as major consumers, to mitigate the impact of any potential supply shortages," the official Saudi Press Agency said, citing a statement from the ministry.

But there's another major question: Will tensions in the Middle East rise even further now that the United States is leaving the Iran deal? Heightened geopolitical fears in the Middle East often raise prices.

Several US military officials told CNN that there are increasing concerns Iran is on the cusp of an attack against Israel. It's not clear when an attack could come, nor what form it could take.

"The three or four-year period of quiet in terms of geopolitics impacting oil markets is over," said Canary's Eberhart.

Iran produced about 3.8 million barrels of oil per day in April, according to the latest S&P Global Platts OPEC survey. That's up from 2.9 million barrels per day in January 2016, when the nuclear deal took effect.

Just how much of Iran's growth in oil production is at risk - and when it could decline - is uncertain. The Treasury Department said on Tuesday that sanctions targeting Iran's oil trade and energy industry will come with a six-month lag.

Most analysts believe that at least some nations will ignore the new American sanctions and continue buying Iranian crude. China, Iran's largest customer, may be especially reluctant to cut Iran off because of the trade tensions between Beijing and Washington.

"Short of war, the only way Iran's crude sales could be disrupted is if European and certain Asian buyers revert back to their pre-2015 embargo policy - and there is virtually zero chance of that," Raymond James energy analyst Pavel Molchanov said in email.

Related: America's biggest oilfield is running out of pipeline

Snapping sanctions back on Iran will have an immediate impact on less than 200,000 barrels per day of Iranian oil, according to analysts surveyed by S&P Global Platts. That figure rises to less than 500,000 barrels per day after six months.

That's still a sizable amount of oil, especially considering the strong demand around the world.

Other major producers could fill the hole left by Iran.

Saudi Arabia, for instance, has the ability to crank up output. Yet analysts say Saudi Arabia would like to keep prices rising ahead of the IPO of its state-owned oil giant Saudi Aramco.

Production in the United States is surging thanks to the shale revolution. In fact, the Energy Information Administration lifted its 2019 domestic output forecast on Tuesday by nearly 4% to a record 11.9 million barrels per day.

"It's quite possible that surging US shale production could easily fill the gap left by Iran," Eberhart said.

One catch: Output is surging so much in the Permian Basin, America's biggest oilfield, that pipelines can't keep up. New pipelines are in the works, but won't be ready until later next year.

Huntsville/Redstone
Clear
39° wxIcon
Hi: 56° Lo: 37°
Feels Like: 39°
Muscle Shoals
Partly Cloudy
45° wxIcon
Hi: 57° Lo: 35°
Feels Like: 43°
Huntsville/Madison
Clear
31° wxIcon
Hi: 55° Lo: 35°
Feels Like: 31°
Decatur
Clear
35° wxIcon
Hi: 57° Lo: 37°
Feels Like: 35°
Fort Payne
Clear
30° wxIcon
Hi: 58° Lo: 37°
Feels Like: 30°
WAAY Radar
WAAY WAAY-TV Cam
WAAY Temperatures

Alabama Coronavirus Cases

Cases: 498887

Reported Deaths: 10122
CountyCasesDeaths
Jefferson719121402
Mobile36328740
Madison32639469
Tuscaloosa24372421
Montgomery22765520
Shelby22231218
Baldwin19890289
Lee15057158
Calhoun13901294
Morgan13770255
Etowah13407325
Marshall11452213
Houston10130264
Elmore9499190
Limestone9429138
St. Clair9041227
Cullman8991183
Lauderdale8618214
DeKalb8507175
Talladega7628165
Walker6593259
Jackson6551104
Autauga633392
Blount6246128
Colbert6004121
Coffee5268104
Dale4676107
Russell407333
Franklin400078
Covington3998106
Chilton3902103
Escambia379273
Tallapoosa3631143
Clarke344553
Chambers3432111
Dallas3422142
Pike293273
Marion288595
Lawrence285386
Winston258568
Bibb245758
Marengo243057
Geneva240570
Pickens225557
Barbour213951
Hale212269
Fayette202257
Butler201766
Henry183641
Cherokee178140
Monroe166739
Randolph165140
Washington156836
Macon147745
Crenshaw146555
Clay146054
Cleburne139941
Lamar133933
Lowndes132851
Wilcox122825
Bullock117436
Conecuh107024
Perry106227
Sumter100432
Coosa90224
Greene88732
Choctaw55423
Out of AL00
Unassigned00

Tennessee Coronavirus Cases

Cases: 780894

Reported Deaths: 11534
CountyCasesDeaths
Shelby877551513
Davidson81978873
Knox46346589
Hamilton40635463
Rutherford38663387
Williamson25433204
Sumner21498320
Montgomery17505213
Out of TN1711195
Wilson16553211
Unassigned15813126
Sullivan14489275
Blount14167184
Bradley13039141
Washington12834234
Maury12262162
Sevier12127165
Putnam10647170
Madison10130231
Robertson9016121
Hamblen8086165
Anderson8075158
Greene7317145
Tipton6972103
Coffee6423115
Dickson6274106
Gibson6197141
Cumberland6130123
Carter5996155
McMinn596293
Roane593896
Bedford5826120
Loudon573567
Jefferson5700119
Lawrence557883
Monroe536990
Warren532877
Hawkins527898
Dyer5243101
Franklin475485
Fayette468673
Obion437095
Lincoln415962
Rhea415373
Cocke402596
Cheatham396344
Marshall392257
Campbell382859
Weakley379660
Giles375597
Henderson362374
Carroll349281
White339766
Hardeman339165
Macon337473
Hardin331963
Lauderdale309742
Henry301475
Marion295245
Scott288344
Wayne288230
Overton286258
Claiborne283769
McNairy268653
Hickman267141
DeKalb266951
Haywood264960
Smith257736
Grainger244946
Trousdale239822
Morgan230838
Fentress229644
Johnson217338
Chester202448
Bledsoe201210
Crockett197647
Unicoi181647
Polk178722
Cannon178030
Union173334
Grundy170130
Lake167926
Sequatchie157227
Humphreys155221
Decatur154137
Benton151139
Lewis147525
Meigs126923
Jackson125734
Stewart124125
Clay107131
Houston103732
Perry103628
Moore94616
Van Buren79720
Pickett74623
Hancock49712

Community Events