(The Center Square) – As the U.S.-Israeli-Iran conflict continues, the price of gas at the pump in the U.S. is skyrocketing and President Donald Trump said it was a “small price” for Americans to pay. This was as the seventh U.S. service member was confirmed killed so far in the conflict.
On Sunday night, crude oil on the U.S. domestic West Texas Index hit $108 a barrel and continued to climb.
The $100 a barrel benchmark is viewed by Wall Street “as a breaking point for the economy unless the war is resolved quickly and prices retreat,” CNBC reported. JPMorgan Chase has projected crude could hit $120 per barrel on the international Brent Index.
Oil futures and wholesale prices for gas and diesel fuel are driving up costs at the pump in the U.S., including in the oil and natural gas capital of Texas in Houston, Heywood Cooper with Houston-based Argos Minerals told The Center Square.
This is due to several factors, including OPEC+ country production cuts being targeted by Iran, a 70% reduction in cargo shipments through the Strait of Hormuz, astronomical insurance costs for shipping companies and futures trades on the New York Stock Exchange.
An estimated 200 tankers carrying crude and liquified natural gas have either dropped anchor or changed course to avoid the strait as a result of the conflict, according to several reports. Roughly 20 to 21 million barrels of crude oil are transported through the strait, including condensate and petroleum products. The volume represents roughly 20% of global daily consumption.
War risk insurers have either cancelled their insurance coverage for shipping companies or increased premiums by 50% due to the conflict, the Financial Times reported. Cargo war risk insurers, which cover commodities carried on tankers, like grain and oil, have also cancelled policies.
Major shipping lines like Hapag-Lloyd introduced a War Risk Surcharge to transport cargo to and from the Arabian Gulf; French CMA CGM also introduced an Emergency Conflict surcharge, the National News reported.
In the U.S., the markets responded to the conflict with oil futures topping $108+ per barrel for April.
“Oil futures are contracts that allow investors to buy or sell oil at a predetermined price at a future date, providing a way to hedge against price fluctuations. Trading in oil futures is essential for managing risk in the volatile oil market and can offer opportunities for profit,” Investopedia explains. “Oil futures prices are determined by market expectations of future supply and demand, geopolitical events, and economic indicators.”
“Crude Oil futures are considered a key benchmark for the entire energy industry and can be used for both hedging and speculating. Crude oil is used for gasoline, diesel fuel, heating oil, and jet fuel. Crude Oil futures can fluctuate based on the geopolitical environment,” Charles Schwab explains.
Meanwhile, futures tied to the Dow Jones fell 806 points last week, CNBC reported.
In one week, gas prices increased by roughly a dollar to $3.40 a gallon in Houston, home to major refineries where gas prices are generally lower than other areas of the state and country.
The national average is $3.45 a gallon and $4.60 a gallon for diesel, with both expected to climb, Patrick De Haan with GasBuddy said Sunday night.
Mars sour crude, the flagship crude produced in the Gulf, traded at a $5.50 on the WTI last week, the highest since April 2020, Reuters reported. Heavy Louisiana Sweet, another crude produced in the Gulf, closed at $5.25 on the WTI last week, the highest since 2020, also indicating a higher demand.
“Buyers seem to be rushing to buy up these barrels as they expect the Middle East conflict to drag on longer,” Rohit Rathod, a senior analyst with ship tracking firm Vortexa, told the outlet.
Gas prices have skyrocketed in one week after Trump said he brought gas prices to record lows from the Biden administration era. At an event in Corpus Christi, Texas, last week, he touted importing Venezuelan crude instead of prioritizing domestic extraction as rig counts in west Texas have dropped in his first year in office, The Center Square reported.
Since then, Venezuelan heavy crude is also selling at higher prices.
“Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A., and World, Safety and Peace. ONLY FOOLS WOULD THINK DIFFERENTLY!,” Trump said.
