Today, Friday, November 2, the Trump Administration announced the U.S. would re-impose sanctions on Iran that were lifted in 2015 under the Obama Administration. The sanctions, which will go into effect on November 5, 2018, target the Iranian energy sector and impede Iran’s ability to sell oil.
According to the Energy Information Administration, Iran ranks as the world’s fourth-largest reserve holder of oil. Iran also ranks among the world’s top 10 oil producers, producing almost 4.7 million b/d of petroleum and other liquids in 2017. While Iran is an oil powerhouse, Saudi Arabia (9 percent) and Iraq (6 percent) are the top two OPEC countries exporting to the U.S. and 2 of the top 5 countries overall that sell oil to the U.S.
In May, when the decision to re-impose oil-related sanctions was announced, the market reacted quickly with crude oil prices (WTI) spiking. These higher crude oil prices, which were as high as $77/bbl this summer, contributed to retail pump prices spiking to their highest points since 2014.
As the crude market saw big upward price swings due to concerns about restricted global supply, Iran started to feel the impact on oil exports. According to the Trump Administration, Iran went from exporting 2.5 million b/d in May to 1.5 million b/d in October and over twenty countries have reduced their imports of Iranian oil to zero. Exports are expected to drop further, but not immediately. Bloomberg has been reported that the U.S. has granted temporary waivers to eight countries - including Japan, India and South Korea - allowing them to continue to import Iranian oil. Those receiving the waiver are expected to continue cutting imports.
What does all this mean for U.S. gas prices through year-end?
Market observers have reported that the combination of early market reactions and Iran’s dip in exports means motorists likely saw the “worst of it” in terms of retail prices during summer.
While the beginning of October saw abnormally high pump prices, the end of the month has treated motorists to cheaper fill-ups. In fact, the national gas price average is at the cheapest point in six months (since the end of April).
If the crude oil market remains steady post-sanctions and the mid-term elections, gas prices are likely to continue to fall as much as ten cents in the near-term.
AAA recommended statement, if needed for media queries:
With the market anticipating the pending Iran sanctions throughout the summer, motorists likely have seen the “worst of it” in terms of retail prices. If the crude oil market remains steady, gas prices are likely to continue to fall as much as ten cents in the near-term.
AAA National staff will continue monitoring gas and crude oil prices and provide updates as needed. Please contact Jeanette Casselano or Devin Gladden with any questions related to this overview.