Kiplinger Energy Outlook: Finally, Some Relief at the Gas Pump?
An end to the conflict with Iran could unlock Middle Eastern oil exports trapped in the Persian Gulf. But markets have seen peace deals fall apart before.
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All eyes in the oil market are on Iran, as talk of a potential cease-fire deal to end the on-again, off-again conflict between Washington and Tehran sends oil prices sliding. Benchmark West Texas Intermediate crude recently traded near $76 per barrel, down from over $90 recently when U.S. forces were bombing Iran, and Iran was firing missiles and drones at its neighbors around the Persian Gulf. Oil exports from the region have plunged ever since the United States and Israel began the war on February 28, and Iran responded by shooting at oil tankers and other ships trying to pass through the narrow Strait of Hormuz.
Whether a cease-fire can be reached remains to be seen. The United States and Iran have made steps toward ending the conflict before, but have repeatedly clashed over Iran’s claim to control shipping through the Strait of Hormuz, which would give Tehran the ability to charge tolls for safe passage and shut off vital oil and gas exports whenever it chooses. If negotiators can bridge that standoff this time, we look for WTI to retreat further, to a range of $70 to $75 per barrel. If they can’t and Iran continues to threaten ships trying to enter or leave the Persian Gulf, oil could quickly return to $90 or $100 per barrel.
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Gasoline prices should move sharply lower if a peace deal in the Middle East can be reached. The national average price of regular unleaded stands at $4.09 per gallon today. Given the current slide in oil prices, retail gas should slip below $4 per gallon in the coming days. But it could shoot right back up if peace talks don’t pan out. Diesel, now averaging $5.37 per gallon, will be slower to retreat, even if oil starts flowing freely out of the Persian Gulf soon. Ukrainian drone strikes on Russian oil refineries are cutting off a major source of diesel fuel from global markets.
Natural gas prices in the United States have been largely unaffected by the fighting in the Middle East or Eastern Europe, since only some of America’s natural gas bounty can be exported to global markets. The amount of gas held in underground storage is a bit above average for this time of year in the United States, and demand hasn’t been strong enough lately to whittle down that extra supply. If another major heat wave grips the Northeast and Mid-Atlantic, gas demand will surge as gas-fired power plants work hard to keep air conditioners running. But if temperatures don’t climb too much, gas supplies should remain abundant, keeping prices in check. The benchmark gas futures contract recently traded at just $2.67 per million British thermal units, near its low for the summer. We look for gas to stay at or below $3 per MMBtu as autumn nears.
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