Tag: economics

“the Strait of Hormuz hasn’t actually reopened yet — and there are serious doubts about what “reopening” means exactly (not to mention how long it might last).

…

Assuming the Strait of Hormuz does fully reopen sometime soon — a big assumption given all the diplomatic challenges ahead — experts say prices at the pump still won’t plunge to their prewar level.

“There’s an old expression: Gas prices go up like a rocket and come down like a feather,” one independent oil analyst told CNN.

In the case of Iran, five factors will continue to pad the price of gas even after the end of the war.

First, oil production has largely ground to a halt across the Persian Gulf over the past six weeks — partly because the region’s oil infrastructure suffered damage and partly because countries such as the United Arab Emirates, Kuwait, Iraq, Oman and Saudi Arabia (the world’s largest oil exporter) ran out of storage space. An estimated 7.5 million barrels of production per day were shut down in March, according to the U.S. Energy Information Administration. Global supply will continue to suffer while these countries play catch up — a process that could take years, experts say.

Second, exporting oil from the Gulf will get more expensive if Iran charges a toll, and that added cost — an estimated $1 per barrel, according to CNN — is likely to be passed on to consumers.

Third, insurance for ships that cross the Strait of Hormuz will likely cost more as well — another expense that could make gas and other petroleum products pricier for Americans.

Fourth, “traders will want some premium to compensate for [the] risk” that the “ceasefire breaks,” according to Zandi. That’s why oil futures are still above prewar levels through the end of 2026.

Finally, retail gas station owners set their prices based on the wholesale price of gas. When oil gets more expensive, that price goes up — but gas stations tend to accept a smaller profit margin on each gallon they sell in order to stay competitive. Then, when the cost of oil starts to fall, they typically try to even things out by hanging onto higher gas prices for as long as possible.”

https://www.yahoo.com/news/us/article/why-3-gas-wont-come-back-anytime-soon-even-with-a-ceasefire-in-iran-233247728.html