As Oil and Gas Prices Rise Amid Iran Conflict, What’s Next? – National

Canadian consumers are poised to pay higher prices for gasoline at pumps across the country as the Iran conflict sends global oil markets into a frenzy.

Crude oil prices are set globally and based on a wide range of factors.

But three days into the war – with US President Donald Trump saying the conflict could last a month or more – markets are already reacting.

“Retail (gas) prices are starting to respond — exactly as expected after wholesale markets adjust. Most drivers should brace for gradual increases this week,” Patrick de Haan, petroleum analyst at GasBuddy, said in a written report Monday.

Here’s how oil markets react.

The prices consumers pay at the pumps are largely determined based on oil prices and other factors.

With rising tensions in the Middle East and particularly the Iran conflict, less oil will be available if the situation escalates and leads to a protracted war.

A decline in global oil supply usually leads to higher oil prices, which in turn can lead to more expensive gasoline for consumers.

According to the US Energy Information Administration, the Middle East region produces approximately one-third of the world’s oil supply.

The price of a barrel of crude oil rose to $73 early on Monday, down from $64 on February 26. According to the publication, crude oil was at $71 per barrel.

A “fear premium” is driving oil prices higher right now, says Derek Holt, vice-president and head of capital markets economics at Scotiabank, suggesting oil markets are concerned about the near-term outlook.

“Elevated geopolitical risk in the Middle East has materially increased the likelihood of broader regional conflict. Ongoing military operations in Iran have introduced significant uncertainty to global energy markets, increasing the risk of future supply disruptions,” Holt said in a written statement.

“Initial market reaction reflects a ‘fear premium’, with the persistence and magnitude of price increases ultimately dependent on whether physical supply weakens.”

6:21
‘I’m not bored’: Trump insists US attack on Iran won’t be a short-term engagement

One-fifth of the world’s oil supply passes through the Strait of Hormuz, a major shipping lane just a few kilometers wide that connects the Persian Gulf to the Arabian Sea and global shipping lanes.

Get breaking national news

For news that impacts Canada and around the world, sign up to get breaking news alerts delivered directly to you as they happen.

But the Strait of Hormuz is effectively closed to shipping because Iran threatens ships approaching it. On Monday, Reuters cited Iranian state media as reporting that a senior Iranian military commander was threatening to set fire to any ship trying to pass through the strait.

There are only a few alternative ways to get oil in and out of the region.

“With 20 percent of the world’s oil moving through the Strait of Hormuz, Iran is unlikely to roll over and therefore ships cannot move there, whether they are bombed or the insurance costs are too high to pay,” says Richard Mason, former CEO of the Petroleum Commission.

“So I expect oil prices to stay here for a while.”

Iran has been attacking oil and natural gas facilities in retaliation for attacks by the United States and Israel.

Qatar’s energy regulator said on Monday it would halt production of liquefied natural gas.

For now, oil and gas supplies have yet to see significant impacts, but that could change quickly as the conflict continues.

“Oil markets were supplied on the go by an attack on Iran. It’s not like it disrupted production in an already tight market in the past,” Holt said in a separate statement Monday.

This means that in the short term, there will be plenty of oil to go around – if a little more expensive.

But if the war continues and the Strait of Hormuz continues to pose a threat to shipping companies, oil supplies could see a significant drop.

“If it turns out the market is thinking, ‘Well, it’s only a few days,’ then it’s not such a big deal because inventories are adequate,” Mason said.

“But if it turns out to be weeks, we’re going to see people really start to scramble to find supplies, and prices will continue to rise.”

De Haan added: “Oil hates turbulence. Oil prices don’t like the unknown. Unfortunately, that’s where we are and that’s why there’s been a tremendous amount of volatility.”

“The market is trying to sort this out and come up with probabilities, but it’s very difficult given how active the situation is,” he said.

1:38
US General Cain says ‘major combat operation’ will take time to achieve targets in Iran

The conflict comes at a time when gasoline prices are already rising due to seasonal changes, which means the situation in Iran adds an extra layer to why prices are rising.

“The Iran situation is adding volatility and a risk premium, but this is weighing on an already robust market,” de Haan said in the report.

“Those forces are already pushing wholesale gasoline higher. The geopolitical premium will simply accelerate the move.”

Gasoline producers are already transitioning to more expensive summer fuel blends, and de Haan says production will be limited in the upcoming refinery maintenance season.

He says the warmer months mean more demand for gas as drivers take more road trips.

This means that without the Iran conflict, gas prices for consumers would have started to rise, but now Canadians could be paying more to fill up.

As it stands, gas pump prices will start rising by between seven and 13 cents per liter next week, while diesel prices will rise by 12-18 cents per litre, de Haan says.

Canada’s national average gas price is currently around $1.32 per litre, according to the CAA, up from around $1.25 a month ago.

“Expect to pay a little more in the coming weeks. There may be some volatility. What else can you do other than shop around when you need to fill your tank,” De Haan said.

If you are a Canadian in Iran right now, we want to hear from you. Email us at shareyourstory@globalnews.ca or use the contact form below.