Gas prices are ticking up—with an assist from President Trump.
When Trump withdrew the United States from the Iran nuclear deal this week, he set in motion a series of events that will develop unpredictably. But it’s likely Iran will end up selling less oil into the global market before long, since the return of US sanctions triggered by Trump’s decision will punish entities that purchase Iranian oil, beginning in November. That will probably push oil and gasoline prices up.
Oil and gas prices have already risen notably during the last month. Crude prices are up nearly 20% this year, to about $71 a barrel for West Texas Intermediate. The average price of gas is around $2.96 per gallon, up 12% this year, or around 30 cents a gallon. Gas could easily crest $3 by summer, since prices typically rise as people hit the road for vacation and demand surges. For that reason, we’re giving Trump a WEAK! rating for this week in Trumponomics.
The US economy can easily withstand $3 gas. Prices probably wouldn’t have a pronounced negative effect until they hit $3.50 or so. Still, consumers are sensitive to gas prices, which can have a psychological effect that’s larger than their actual impact on family finances. The cost of gasoline, advertised in foot-high signs at stations everywhere, is the most visible price tag many consumers ever see, which is why gas prices have totemic importance as a symbol of how the whole economy is doing. Pain at the pump is bad news for presidents—especially in election years.
Iran produces about 5% of the world’s oil, and its top two customers are China and India, which may not care about the US sanctions and could keep doing business with Iran. So it’s not like Trump’s decision will generate an oil shock that sends prices soaring. But European buyers may have to stop purchasing Iranian oil, causing dislocations in the market. Saudi Arabia and other OPEC nations, meanwhile, would like to see oil prices hit $80 or so, and could curtail their own production to make it happen.
There’s a countervailing force. The higher oil prices go, the stronger the incentives for American frackers and other non-OPEC producers to drill, which tends to boost supply and bring prices down. If that happens, and US pump prices fall back toward $2.50, we’ll issue a new Trumponomics rating, perhaps BIGLY or even HUGE!
Confidential tip line: rickjnewman@yahoo.com.Click here to get Rick’s stories by email.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman
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