Saudi crisis likely to spark price increases
Saturday’s drone strikes lead to spikes at gas pump and groceries.
Area consumers face a double whammy after drone strikes Saturday on two of Saudi Arabia’s major oil facilities: Rising pump prices for regular gas and diesel and increased costs on consumer goods.
Brent Crude futures made the largest jump ever recorded Saturday following the strikes, sending average gas prices as high as $2.85 Tuesday in the Dayton region. Gas prices would usually be declining this month during a switch to winter blend gasoline that’s cheaper to produce and a post-summer demand decline.
“The strike removed out of the global oil market 5 to 6 million barrels of oil daily...which is quite big and significant,” said Riad Ajami, an oil expert and international business and global strategy professor at Wright State University.
“Trucking companies, airlines, consumers, farmers who are using petro-chemicals....are all going to be thinking will my next load cost me more, will my next attempt at the gasoline pump cost me more?”
Those prices have already jumped because of uncertainty, retreating a bit Tuesday, but Ajami said they will steadily rise again over the next week. It’s not a factor of supply and demand, because there is plenty of back-up supply globally, but a result of uncertainty between Iran and Saudi Arabia, he said.
“A responsible corporate executive at any of the providers of petroleum ... in order for them to continue to survive and thrive in an uncertain market, to cover themselves, they would need to increase the price at the pump.
How much?
That will be determined on their assessment internally,” Ajami said.
GasBuddy analysts expect a 10 and 25 cent per gallon increase, said Allison Mac, a petroleum analyst. All forms of fuel, including gasoline, diesel, jet fuel and kerosene will be impacted to some degree, she said.
“The temporary spikes, when it comes to a situation like this, the most impacted are the people who really, really need gasoline — the high-mileage drivers — those are definitely the ones who are going to be hit by this. Diesel and regular fuel are going to be impacted the same degree, because its being hit at the oil level,” Mac said.
Truck driving companies typically buy fuel in bulk, but they still see those purchases rise when situations like the Saudi strikes arise. But in a modern business model, those companies have agreements that their clients will cover a fuel surcharge, said Kevin Burch, owner of Dayton trucking company Jet Express.
“Many of the companies have adjustments so that has really helped us out,” Burch said. “But (the cost) is passed along to the customer. That’s passed along to the grocery, to the warehouse, the difference manufacturings, because that fluctuates quite a bit.”
Home heating oil, which is diesel fuel dyed to show that no road taxes were paid, also saw an increase, said Jared Lusk, director of pricing and supply at Beavercreek-based Duncan Oil.
“At 6 o’ clock every day, Monday through Friday, the price of fuel changes. So (Monday) if your truck pulled in and say it started getting the fuel in the truck at 5:59 p.m., you’d be okay and your cost would be 30 cents less,” Lusk said. “However if you started loading after 6 o’clock in the evening, your cost instantly went up 30 cents.”
As the cost oil companies pay for the home heating fuel fluctuates, so do the prices consumers pay the company for the heating oil.
Now is the time last-minute buyers are purchasing home heating oil. All through the summer into September consumers buy the oil to last them through the winter, with most looking to get the oil ahead of diesel price increases once farmers start their fall harvest, Lusk said.
“If I was buying heating oil, I would not buy it today, I would not buy it tomorrow; I would give it a week and see what happens,” he said.
Even flight costs are likely to see a jump as airlines pass on the increased jet fuel cost to consumers, said aviation expert Jay Ratliff.
“The thing that really worries me about airlines is that they’re very quick to raise the fuel prices based on x,” he said. “When x goes away, they don’t reduce the fares.”