Many of you are no doubt growing concerned about another gasoline price spike in the wake of President Trump’s decision to suspend U.S. participation in the Obama-era Iran Deal on Tuesday. The media is filled with wild predictions of $100 oil and even higher, so the concern is easy to understand.
But all these hysterical headlines are just a bunch of unjustified clickbait. Here are 7 reasons why:
- The President’s announcement did not, as widely reported, “end” U.S. participation in the agreement – it simply suspended U.S. participation while efforts will take place to renegotiate its terms;
- Even if U.S. sanctions on Iran are fully re-implemented, the result would be, at most, about 300,000 – 400,000 barrels of Iranian crude per day removed from global supply, which is currently in excess of 95 MILLION barrels of oil per day. That equates to a reduction of about 4/10ths of one percent of global supply, not exactly earth-shattering;
- The world is literally saturated with oil, and more is being discovered every day;
- Between now and the end of 2018, oil production in the United States alone will likely rise by about half a million barrels per day;
- Saudi Arabia alone has as much as 2 million barrels of oil per day in excess capacity that is not currently being produced. Countries like Kuwait and Russia also have the ability to significantly increase their own production on a moment’s notice;
- It is not in any of those countries’ best interests to see the price of oil to spike to $100/bbl, or to see drivers in the U.S. to have to pay $4 per gallon for gasoline for any extended period of time. That would inevitably result in demand destruction, and a return by U.S. automakers to focusing on producing high mileage compact cars. Those oil producing countries want U.S. drivers to keep buying pickup trucks and SUVs;
- It is also not in President Trump’s best interests to see an oil price spike. The economy is humming right along under his policies, and he wants to keep that going.
Could the prices of crude oil go higher than it currently is? Yes, it could rise slightly higher by the end of the year, but that will be due to a variety of global economic factors, and not due to President Trump’s decision on the Iran deal. So quit worrying and go about your business, ok?
That concludes our Shale-‘splainer for today.