U.S. gasoline and diesel prices are climbing as the Iran war disrupts energy markets, with the national pump average at $4.06 a gallon. A bottleneck in refining means retail fuel could stay expensive even if the fighting pauses, squeezing American households through the summer.
The Iran war is driving U.S. gasoline and diesel prices higher, and a bottleneck in refining means the pain will linger even if the shooting stops. The national pump average reached $4.06 a gallon on Wednesday, up 4.4% from $3.89 a week earlier, according to AAA. Diesel carries the greater economic weight, and its federal benchmark jumped nearly 34 cents last week to $5.13 a gallon — the steepest weekly climb since the war's first week in March.
Why fuel prices won't fall fast
The trouble sits in the refineries that turn crude oil into usable fuel. U.S. plants are maxed out at 96.1% of capacity, the Energy Information Administration said Wednesday, after ramping up to supply jet fuel to European markets cut off from Middle East suppliers. Inventories drawn down early in the war remain thin, and the Strategic Petroleum Reserve has fallen to 311 million barrels, its lowest level since March 1983.
More crude flowing therefore does not quickly translate into cheaper fuel. Brent traded around $94 a barrel midday Wednesday, yet the retail prices consumers pay matter more now than the benchmark. According to Rabobank's Christian Lawrence, diesel is what to watch "because of course that is the lifeblood of the U.S. economy".
The conflict widens
The war is opening new fronts across the region. Iran's Houthi allies in Yemen have completed preparations to attack ships near the Bab el-Mandeb, a U.S.-led maritime group warned, after declaring a maritime embargo on Saudi Arabia. Traffic through the chokepoint dropped 34% on Tuesday as vessels avoided the route, according to ship-tracker Kpler.
Iran has meanwhile stepped up tanker attacks in the Strait of Hormuz, where a dozen ships have been hit since July 6, killing two seafarers, as Tehran tries to force vessels through its territorial waters. Its Revolutionary Guard has separately threatened to cut electricity to U.S. regional allies if its power plants are struck.
Pressure on households
Higher fuel costs are landing on stretched budgets. Consumer prices rose a better-than-expected 3.5% in June, but that reprieve looks temporary as fuel eats into wage gains. A CNBC survey found 37% of U.S. voters are leaning more on credit cards for food and gas, up 6% since April. Relief may not arrive before Labor Day, with no short-term fix in sight for the refining crunch.
Sources: CNBC, CNBC, investingLive
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