US gas prices spike after Saudi oil field attacks

Gas prices will climb following the Saudi attacks

US gas prices spike after Saudi oil field attacks

New York (CNN Business)American drivers have gotten used to relatively low gasoline prices. But that will probably change. Crude oil prices are rising after attacks on oil fields in Saudi Arabia over the weekend.

Experts say consumers may begin to notice higher prices soon, but the increases may be minimal. Gas prices probably won't climb high enough to substantially hurt the US economy.

The current average price for a gallon of gas nationwide is $2.56, according to AAA.

That's down from nearly $2.64 a month ago, $2.85 during the same time last year and the most recent peak of near $3 a gallon from May 2018, AAA said.

Prices typically peak for the year during the summer, when people tend to drive more, and head lower toward the end of the year.

Jeanette Casselano, a spokesperson for AAA, said that might not happen this year. The sudden jump in oil prices above $60 a barrel means gas prices are expected to start rising within a few days, she said. How high they go and how long they remain elevated will depend a lot on how quickly Saudi Arabia is able to get production back on line.

Spike in gas prices at end of year is uncommon

Any increase in gas prices at this time of the year is relatively uncommon, according to Patrick DeHaan, head of petroleum analysis for GasBuddy, a firm that has an app that helps people track gas prices at individual stations in real time.

DeHaan notes that most gas stations are beginning to transition to a winter blend of gasoline, which is cheaper to produce and costs less at the pump.

But because of the attack on Saudi oil assets, DeHaan estimates that gas prices could climb anywhere from 10 cents to 25 cents a gallon over the next few weeks.

He expects many gas stations would spread out any price hikes over a period of time — a couple of pennies per day for about two weeks — so it doesn't come as a sudden surprise to consumers.

“This is not something that will be swift,” DeHaan predicts.

The impact from damaged Saudi infrastructure may not hurt the broader economy as much because the United States is no longer as dependent on oil from Saudi Arabia as it once was, in part because of the American shale boom.

In the first half of this year, the United States imported less than half the amount of barrels each day from Saudi Arabia that it did at the same time two years ago, according to AAA's Casselano, citing data from the US Energy Information Administration.

Asian economies are ly more exposed to a long-term supply disruption because Asia is more reliant on Saudi oil exports, noted CFRA analyst Stewart Glickman. Glickman added that US gas price hikes might be tempered if President Donald Trump winds up releasing oil from the nation's Strategic Petroleum Reserve. Trump said this weekend he would open the SPR.

So far, oil prices — and by extension gas prices — remain at reasonable levels.

Gas prices still well below peak pain points

DeHaan said that the spike in oil prices will probably hurt big airlines that are huge buyers of jet fuel — and airline stocks took a bigger tumble than the broader market Monday. But that probably won't put a dent in consumers' wallets.

He does not think higher gas prices will cause consumers to stop buying as many big SUVs and trucks over smaller sedans — or for automakers to suddenly start making more smaller, fuel efficient cars for that matter.

Casselano of AAA added that consumer behavior hasn't tended to change much until gas prices are in a range of $3.25 to $3.50 a gallon. We're still well below that.

“People will notice the spike. But prices have to be a lot higher before people start to make some lifestyle changes running fewer errands and going out to shop less,” she said.

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Why the Dow fell and oil prices surged Monday

US gas prices spike after Saudi oil field attacks

An attack on Saudi Arabian oil facilities caused energy prices to increase worldwide and reignited fears of a U.S. military confrontation in the Middle East. USA TODAY

The Dow Jones Industrial Average fell more than 100 points Monday after an attack on Saudi Arabian oil facilities disrupted more than 5% of the world’s daily crude supplies and raised the prospect of higher gasoline prices that could add a speed bump to a vulnerable U.S. economy.

Gasoline prices are ly to rise 10 to 25 cents a gallon as early as this week after strikes on two major Saudi oil facilities over the weekend caused the largest disruption of the world’s daily oil supplies, analysts say.

A 15-cent rise would leave average pump prices at $2.71 a gallon, up from $2.56 Monday, according to AAA. 

U.S. crude prices rose nearly 15% Monday in response to the attacks. Wholesale gasoline prices increased about 15 cents a gallon, says Tom Kloza, chief global analyst for the Oil Price Information Service.

The Dow fell 143 points, less than 1%, to 27,077 on Monday after the attack raised the risk of more disruptions to oil supply when the global economy is vulnerable. The Dow came off eight straight days, and three consecutive weeks, of gains.

Although Saudi Arabia said it would quickly replenish the lost oil from its stockpiles, Kloza says, “I think that everybody needs to be very skeptical. It’s really an uncertain question.”

Phil Flynn, senior market analyst for the PRICE Futures Group, says Saudi Arabia will probably be hard-pressed to replace the disrupted oil for more than several weeks. The United States indicated it's prepared to tap emergency reserves if necessary.

Even if Saudi Arabia repairs the damaged facilities within a few weeks, fears of a Saudi Arabian counterattack on Iranian oil supplies could keep oil and gas prices elevated through the fall, Kloza says.

A Yemeni rebel group claimed responsibility for the attacks, but the U.S. government suggested they originated in Iran.

“There's potential for higher prices if there's reprisal,” Kloza says.

US production eases the pain

The good news is any price increase is ly to be somewhat limited because refineries have switched from summer to winter blends of gasoline, which have less rigorous environmental standards and are less expensive to produce, Flynn says.

Also cushioning the blow of any price hike is that oil prices have simply rebounded to July levels. Similarly, a 15-cent rise in pump prices would leave them around their midsummer peak.

The USA is the world's largest oil producer at about 12.4 million barrels a day, Kloza says. The country, which imported most of the oil it consumed in the mid-2000s, now imports less than half, making it less dependent on global price swings.

Gas prices could rise as early as this week (Photo: SbytovaMN / iStock)

Economic impact

The U.S. economy has slowed but performed solidly as a result of steady consumer spending despite the trade war with China and a slowing global economy.

Those developments have hurt business investment and raised the risk of recession.

A persistent spike in gasoline prices could partly dim the picture of a healthy American consumer, who would have less cash for discretionary purchases. 

Because oil production makes up a bigger part of the economy, a price increase would spur more crude production, along with related factory output and business investment, partly offsetting the dip in consumer spending, says economist Gregory Daco of Oxford Economics.

The bottom-line impact on economic growth is ly to be negligible, at less than a tenth of a percent, unless additional oil supplies are disrupted, pushing up prices further, Daco says.

Energized stocks

Energy stocks rose because of higher crude prices. Marathon Oil went up 12%.

GM strike

General Motors slumped 4.3% after about 46,000 members of the United Auto Workers went on strike. The union and company have been locked in contract talks, and it wasn’t clear how long the walkout would last.

Enter the Fed

The Federal Reserve is ly to lower its short-term interest rate by a quarter percentage point Wednesday because of the growing risk of a recession by the end of 2020. The Fed cut the rate in late July for the first time in a decade. Daco says the oil prices are not ly to play a significant role in the Fed's analysis.

Contributing: The Associated Press


Drones claimed by Yemen's Houthi rebels attacked the world's largest oil processing facility in Saudi Arabia and a major oilfield operated by Saudi Aramco early Saturday, sparking a huge fire at a processor crucial to global energy supplies. (Sept. 14) AP Domestic

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Gas Prices Could Rise Up to 25 Cents a Gallon After the Saudi Oil Facility Attacks

US gas prices spike after Saudi oil field attacks

The attacks that crippled two major Saudi oil facilities over the weekend are already beginning to drive up gas prices for American drivers half a world away.

This week, consumers can “definitely expect to see gas prices increase anywhere from 5 cents to a dime or a little more” as the market adjusts and ly starts to stabilize, Jeanette Casselano, AAA spokesperson tells TIME. That jump could escalate to as high as “a quarter per gallon throughout this month,” she adds.

That’s the bad news. The good news is that the impact on gas prices is ly to be short-term. And it’s significantly less than it would have been even a few years ago—when the U.S. produced less oil of its own.

Much of the impact depends on how quickly Saudi Arabia can get its oil production back online, Casselano says. Saudi energy minister Prince Abdulaziz bin Salman said at a Tuesday news conference that half of the oil production stopped by the attack has since been restored, and that production would be fully restored by the end of September, the Washington Post reported.

The attacks in Saudi Arabia took 5.7 million crude oil barrels per day off the market, about 6% of the global supply. One of the targeted sites, Abqaiq, is the world’s largest oil processing facility.

Political disputes and tensions in the Middle East have often sparked disruptions in the oil market: the Arab oil embargo of the 1970s, the Iranian revolution in the latter part of the decade and the Persian Gulf War in the early 1990s all created significant fluctuations in oil and gas prices, the U.S. Energy Information Administration notes. Severe weather can have and has had similar effects, too. Hurricanes in the Gulf of Mexico, for example, can lead to an increase in gas prices in the U.S. if they affect production in the Gulf of Mexico.

Despite what happens with Saudi’s oil production in the aftermath of the attack, the United States is in a better position than it’s historically been: it’s producing more oil than it was years ago, and gas is significantly cheaper than it has been in the past.

A rise in global oil prices is “not as economically damaging as it would have been in the past,” Samantha Gross, a Brookings Institution fellow working on energy and environment policy, tells TIME.

“The most important thing that’s happened since the 1970s and 1980s is that U.S. oil production has completely taken off,” Gross says. “The U.S. is now the world’s largest oil producer.

” The Energy Information Administration notes that oil production in the U.S. grew by 17% in 2018 alone.

Gasoline prices have also been relatively low for most of this year, Gross notes. In 2012, gas prices reached the highest they had been in 80 years — running above $3.60 a gallon, according to the U.S. Department of Energy. The national average gas price on Wednesday was $2.65 per gallon.

While the attacks are “very unfortunate,” Casselano says, “The supply that’s out there was enough that we didn’t see an even larger impact to [the price of] crude oil,” Casselano says.

“America is producing more and more crude oil than ever before and we are depending less and less on Saudi Arabia.”

The Energy Information Agency projected earlier this year that the U.S. is expected to export more energy than it imports by 2020. In 2018, the U.S. imported nearly 10 million barrels per day of petroleum and exported about 7.59 million barrels per day.

How is the Saudi attack impacting oil prices?

Oil prices shot up after the attack in Saudi Arabia. They increased more than 14% on Monday, to close at $62.90 a barrel. By Wednesday, the price had fallen to $58.40—though still above the $54.85 where it was before the attacks.

Ehud Ronn, a finance professor at the University of Texas at Austin who studies energy risk, compares the situation to a hurricane affecting the Gulf: “Prices move up but obviously the hurricane passes and then we” usually revert back to original prices.

He notes, whether this is a temporary or longer-lasting increase will probably depend more on political factors more than economics. “Markets reflect that greater uncertainty by essentially pricing in more volatility,” Ronn says.

But with the Saudis signaling that regular production will resume in the next few weeks, it appears that any price hike will not stay for too long.

If the Saudis are back to producing oil as normal “in a couple of weeks” that’s going to “mute things” Ronn says.

Gross, the Brookings fellow, says the attacks destroyed part of the facility in Saudi, but did not flatten it, allowing operations to resume more quickly than many feared. She says the immediate hike in oil prices was related to the “jitters and uncertainty” that first accompanied the event.

“We saw a quick increase in [gas and oil] prices because folks weren’t certain where their next barrel was going to come from,” Gross says.

“They weren’t sure how bad the damage at the facility was, how long it was going to be offline.

” But now that they appear to be resuming operations soon, there’s a sense that “there are plenty of stocks around the world to cover any shortages” and “we’re all going to be fine.”

Still, she notes, “the Saudis are still the indispensable country in oil markets. They’re still the world’s largest exporter.”

“Even though the US produces a lot of oil, we’re still connected to global markets. Things that happen in the middle east or in other places can still affect us even though we have a lot of oil here,” Gross says. “A disruption in Saudi is still really important to global oil prices. And prices that U.S. consumers pay are still global oil prices. We don’t get any sort of special deal.”

Will gas prices go up after the Saudi attack?

At the beginning of the week, the national gas price average “held steady” at $2.56 but Americans can expect to see price fluctuations for gas in the “coming days and weeks,” AAA said in a statement. Wednesday’s national average gas price tick up to $2.65, according to AAA. That’s about nine cents more than Monday’s national average gas price.

Casselano says that 52% of “what you pay at the pump is reflective of crude oil prices.” She adds: “The minute those start to rise, you see big increases.”

An annual survey that AAA does with consumers finds that 74% of Americans say they would start making lifestyle changes to offset higher pump prices, including driving less and reducing eating out, Casselano says. Of those, one in four say $2.75 is the tipping point to push them toward making changes.

Although price changes of gasoline across the U.S. has not been uniform, this does not mean the Saudi attacks are not affecting prices “across the board,” Casselano says.

There are relatively higher gas prices on the West Coast and cheaper gas prices in the South and South East but that’s a typical trend, she notes, explaining that what we’re seeing is not just market reactions to crude oil but gas station owners making their own decisions personal calculations of risk.

How has President Trump responded?

President Donald Trump said on Monday afternoon that he does not “want war with anybody” but appeared to indicate he has not completely ruled out military intervention.

He called the incident in Saudi Arabia a “very large attack” and said “it could be met with an attack many, many times larger very easily by our country but we’re going to find out who definitively did it first.” Yemen’s Houthi rebels have claimed responsibility for the attacks.

But this has not stopped Trump from publicly blaming Iran for being involved. Saudi Arabia has been at war with the Iranian-backed Houthi rebels in Yemen since 2015.

Trump tweeted on Sunday that “ the attack on Saudi Arabia” he had authorized the release of oil from the Strategic Petroleum Reserve “if needed.”

The president made what appeared to be a bold statement that same day saying the U.S. is “locked and loaded” in response to the incident.

He also weighed in on the political situation on Monday, questioning whether Iran had anything to do with the attack.

He said on Monday that it “looks” Iran may have been responsible for the drone strikes on the Saudi Arabian oil facilities, the AP reported.

The Saudi government did not directly blame Iran for the attacks but did call them an “unprecedented act of aggression and sabotage,” according to the AP, which also notes that Iran has denied any involvement.

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