Bob CollinsIf you had to make a choice, which would you choose: Iran with nuclear weapons and us with lower gasoline prices or higher gasoline prices and a disarmed Iran?
The U.S. and other nations have chosen an economic sanctions route in their effort to convince Iran to dismantle its nuclear program. And overnight, Iran responded by cutting off oil shipments to some Western countries.
Overnight in the Twin Cities, gasoline prices jumped about 20 cents a gallon — to $3.55 — and it’s not because of Iran’s action. It’s an increase that’s been in the pipeline since the price of a barrel of oil began rising several weeks ago, partly because oil investors are worried about the flow of oil from Iran drying up.
But Britain and France aren’t big buyers of oil from Iran, and the U.S. doesn’t import any Iranian oil so why does Iran’s threats mean we pay higher gasoline prices?
Marketplace tackled that question this morning:
The news is pushing up prices partly because the market is concerned that what could follow next would be a further cutoff of supplies elsewhere in the region, including to major European buyers like Italy and Spain and so on. But also fears that as Saudi Arabia increases production to meet the shortfall in demand, that global spare capacity of oil production is starting to fall. And so, in the event of any unforeseen disruption to oil supplies elsewhere, the world may not have enough spare capacity to meet the incremental demand.
Already today, the price of a barrel of oil is up $1.70 — to $105.30.
What does that mean for the driver? Almost a year ago we tracked the relationship between the price of a barrel of oil vs. the price of gasoline. It’s a completely unscientific survey but a year ago the price of a barrel of oil was — wait for it — $105 a barrel — what it is today. And the price of a gallon of gasoline was… $3.55 — exactly what it is today.
Of course, the price of gasoline trails the price of oil. But it’s clear that when a barrel gets to be about $119-$120 a gallon, we’ll be paying about $4 for gasoline.
There’s one proven method for reversing that trend: Use less oil.
