Benchmark prices for U.S. crude oil cracked $70 a barrel Monday for the first time since 2014, foreshadowing costlier gasoline and consumer goods.
Benchmark U.S. crude rose $1.01 to settle at $70.73 a barrel on the futures market in New York. The international standard, Brent crude, rose $1.30 to $76.17 in London.
U.S. consumers have felt the pain of rising crude prices since the start of the year. Gasoline prices, already near the highest level since November 2014, are likely to push even closer to the $3 a gallon mark as the futures market rally filters through to the retail level.
The national average for gasoline is now $2.81 a gallon, according to the auto club AAA, and it's not even the peak driving season yet. Pump prices are up 15 cents from a month ago and 46 cents from a year ago.
In Arkansas, the average price for gasoline on Monday was $2.53 a gallon, up from $2.13 a year ago. Gas in the Little Rock and North Little Rock area averaged $2.50 a gallon, according to AAA. Northwest Arkansas motorists saw an average price of $2.49 a gallon.
Eventually fuel prices show up in the costs of all sorts of consumer goods that are hauled by plane, train or truck, but oil prices are not yet high enough to derail economic growth, said Diane Swonk, chief economist for accounting firm Grant Thornton LLP.
"We are still adding jobs, and that is helping us to absorb it," she said. "Wages aren't accelerating as rapidly as we would like, but we are hearing a lot of anecdotal reports of wages picking up and that should help."
Analysts said the recent rally in oil prices has been driven mostly by strong demand and limits on production. But, they said, a contributing factor is concern that Iranian oil exports will fall if the U.S. withdraws from a 2015 deal that eased sanctions on Iran in exchange for limits on its nuclear program. Also, U.S. stockpiles of crude are down from this time last year.
President Donald Trump tweeted Monday that he would announce today whether the U.S. will remain in the Iran nuclear accord. Iran is the third-largest producer in the Organization of Petroleum Exporting Countries.
"Killing the [Iran nuclear] deal may inflict more pain on motorists, as it may lead to sanctions placed on Iran and their oil production, which would likely push oil prices higher," Patrick DeHaan, head of petroleum analysis for GasBuddy, said Monday in a note.
High or even higher gasoline prices ahead of U.S. midterm elections this year "could be a factor in leading the U.S. president to reconsider calling off the Iran deal," said Giovanni Staunovo, an analyst at UBS Group AG in Zurich.
Iran produces nearly 4 million barrels a day out of global total of about 98 million barrels per day. Analysts say that sanctions could cut Iran's sales by between 200,000 and 600,000 barrels a day.
The Trump administration heard arguments in favor of the Iran accord last week from French President Emmanuel Macron and German Chancellor Angela Merkel. U.K. Foreign Minister Boris Johnson is in Washington this week to make a last-ditch argument to persuade Trump to remain in the accord.
The fact that Trump announced the decision time without once again slamming the deal could have given the market some confidence that it may not be entirely scrapped, said Josh Graves, senior market strategist at RJO Futures. "The market is probably considering from his comments that we stay in this deal. That we would tweak it and not totally leave the deal," he said. Keeping the deal would mean "oil could trade back down to mid-$60s," said Graves.
That threat of a reduction in supply coincides with production cuts by OPEC, which is led by Saudi Arabia, and Russia, one of the world's largest oil producers, that have helped drain a glut that was depressing prices. Their deal was reached in 2016 and began to take effect last year.
OPEC has a spotty track record of carrying out production cuts, but compliance has been strong this time. "I think we are where we are because OPEC got their groove back," said Helima Croft, an analyst at RBC Capital Markets.
The reduced global supply -- combined with the solid global economy -- has helped push oil prices higher since they fell below $30 a barrel in early 2016.
"It is mostly a fundamentals-driven market but the icing on the cake is the worry about Iran," said Michael Lynch, president of Strategic Energy and Economic Research, a consulting firm.
A boom in production in the United States has helped offset some of the tightening in supply in recent months. But higher prices elsewhere have prompted U.S. producers to sell on the global market, driving oil exports to record highs and pulling domestic oil prices higher.
Energy economist Philip Verleger said he believes that oil prices are heading higher. He cited several signs that could point to higher crude prices, including comments by Saudi Energy Minister Khalid al-Falih that current prices aren't hurting demand, implying that they could go even higher. He also pointed to a report that U.S. oil company ConocoPhillips is trying to seize Caribbean assets of Venezuela's state-run oil company to recover a $2 billion award for Venezuela's nationalization of the company's projects there.
Houston-based ConocoPhillips is asking a court in the Dutch Antilles for control of facilities that Venezuela's state-run oil firm PDVSA operates, a person familiar with the claim confirmed to The Associated Press. The person was not authorized to discuss the legal action.
PDVSA relies heavily on the facilities on the islands of Curacao, Bonaire and St. Eustatius used to refine and store Venezuela's heavy crude before shipment to the U.S., China and India, three major global markets.
Dozens of ships that transport oil pumped from Venezuela sat idle Monday docked in the country's ports, according to an online vessel-tracking website.
Venezuela holds the world's largest underground oil reserves but production has declined under nearly two decades of socialist leadership, casting the once-wealthy nation deep into political and economic crisis.
Information for this article was contributed by Matt Phillips and Stanley Reed of The New York Times, David Koenig and Scott Smith of The Associated Press and Sheela Tobben of Bloomberg News.
Business on 05/08/2018