The U.S.-Israel war with Iran means higher profits for Texas oil companies and higher costs for its consumers, according to Texas experts who are tracking suddenly-volatile energy markets.
The average cost for a gallon of regular gasoline in Texas hit $3.21 Tuesday morning, up from $2.55 a month ago, according to AAA. That is lower than Tuesday’s national average of $3.54.
While Texas’ position as the nation’s leading oil and gas producer insulates Texans from the steepest price hikes, drivers should expect to pay more at the pump the longer the war continues, experts said, especially during the summer travel season when gas consumption rises.
“The biggest question I’ve been getting is, ‘Is this going to be like the summer of 2022,” when oil jumped to $128 per barrel following the Russian invasion of Ukraine, said Thomas Weinandy, principal research economist at retail technology platform Upside. “It could be worse … In raw numbers, there’s more oil at risk.”
Gas stations typically avoid immediately passing onthe full amount ofoil price hikes to their customers, Weinandy said, adding that gas station owners typically make their money back by lowering their prices more slowly as oil prices fall.
Ray Perryman, an economist and founder of the Perryman Group, which conducts economic analyses across several Texas industries, added that the war’s impact on Texas’ oil and gas industry largely depends on how long crude oil prices remain elevated.
The price of Brent crude, the international benchmark, briefly surged to $119.50 per barrel early Monday — its highest level since the summer after Russia invaded Ukraine. West Texas Intermediate, which is produced in the U.S., also soared above $119 per barrel at one point.
But after Trump told CBS News on Monday that he thinks “the war is very complete,” prices quickly fell to under $90 by the end of the day.
Crude was selling for roughly $70 per barrel before the U.S. and Israel launched air strikes against Iran on Feb. 28. Fear of Iranian attacks has all but closed the Strait of Hormuz, the international shipping lane where 20% of the world’s oil supply typically travels daily.
Texas’ oil industry is positioned to be a big winner from the war, Weinandy said.
“If we’re talking about Texas, this is very good news for the oil industry,” Weinandy said. “Oil companies are certainly the beneficiaries of being able to sell their product at higher prices.”
But those additional profits for oil companies mean higher costs for consumers. Oil markets are so volatile because it is difficult and costly to increase production and global demand is typically stubborn, Weinandy added.
Higher oil prices mean higher profits for oil companies selling onto the global market, but the uncertainty caused by the war is bad for planning new investments in the short term, said Todd Staples, president of the Texas Oil and Gas Association.
“Our goal is for certainty and stability because in order to plan investment and plan for jobs, you have to have predictability,” Staples said.
Texas drillers could accelerate drilling in the Permian Basin to moderate domestic price increases, but uncertainty surrounding the war’s duration makes that a risky move, said Ed Longanecker, president of the Texas Independent Producers and Royalty Owners Association.
The United States’ renewed access to oil fields in Venezuela after the U.S. military captured President Nicolás Maduro in January is unlikely to provide a boost for global oil supply because the country still requires billions of dollars in investment before production returns to its 1990s peak and political uncertainty remains, Longanecker said.
Trump could also tap the U.S. Strategic Petroleum Reserve to flood the market and decrease the strain on supply. The reserve currently holds 411 million barrels, or the equivalent of about 30 days of the total U.S. daily production, according to the Department of Energy.
On Saturday, Trump downplayed the idea of turning to that option, saying that U.S. supplies are ample and prices would soon fall.
But the longer the war drags on, the more severe the disruptions to oil and gas prices will become, Weinandy said.
A reopening of the Strait of Hormuz does not mean gas prices will immediately return to normal, Weinandy said.
“Gas prices go up like a rocket and fall like a feather,” he said.
Disclosure: The Texas Oil & Gas Association has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.
This article first appeared on The Texas Tribune.
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