Another reason not to Bomb Iran

A clear financial reason not to Bomb Iran, and to w negotiate a peaceful settlement in Syria. DON'T OMB IRAN.

November 8, 2013
As Tensions Fall in Iran, So Do Costs of GasolineBy CLIFFORD KRAUSS
HOUSTON — Gasoline prices are tumbling just in time for the holiday shopping season to begin. 

Consumers can thank the tentative reduction in tensions in the Middle East and swelling supplies of domestic oil for their good fortune, and energy experts say prices could fall further if negotiations between the West and Iran progress. 

The cost of a gallon of regular gasoline has dropped by 6 cents a gallon over the last week alone, in line with a steady swoon through the fall that has brought prices to their lowest levels in three years. 

Seasonal price declines are expected this time of year, but the slide this year is particularly steep. It brings modest relief to consumers at a time when families try to scrape together disposable income for gifts, road trips and entertaining family and friends. 

“From a psychology standpoint, lower prices at the pump are correlated with higher consumer confidence,” said Michael Niemira, chief economist for the International Council of Shopping Centers. “Over the years Walmart has said how deeply dependent their consumers are on gasoline prices and it goes beyond Walmart.” 

The national average price for a gallon of regular gasoline was $3.21 on Friday, 14 cents below a month ago and 25 cents below last year, according to AAA’s daily fuel gauge report.
Drivers in all 50 states are enjoying lower gas prices than a year ago, and Arkansas, Kansas, Missouri, Oklahoma and Texas filling stations are now charging $3 or less a gallon on average. The AAA automobile club predicts that the national average will dip to as low as $3.10 a gallon for regular by the end of the year, and some analysts see even more declines. 

“The majority of the population will be able to find gasoline for less than $3 a gallon between now and New Year’s,” Tom Kloza, chief oil analyst at GasBuddy.com, said. 

The average household consumes 1,200 gallons of gasoline a year, which translates into a $120 annual savings for every dime shaved off the price of gas, energy experts say. 

Economists say over time lower gasoline prices act like a tax cut, or in the case of this year, a partial cushion for the resumption of Social Security payroll taxes that had been temporarily reduced after the financial crisis. 

There was a spike in oil and gasoline prices over the summer after the Egyptian army staged a coup and when the United States appeared poised to take military action in Syria. 

The Brent oil benchmark climbed above $115 a barrel in early September, but began drifting down by more than $10 a barrel after President Obama backed off attacking Syria and the Syrian regime agreed to demobilize its chemical weapons stockpiles. The principal American benchmark, West Texas Intermediate, had climbed to $110 a barrel but is now below $95. 

Oil price spikes have been common since turmoil spread across the Middle East and North Africa three years ago, and as the United States and Europe tightened sanctions on Iran, trying to force the country to modify its nuclear program to exclude nuclear weapons. 

The Western sanctions on Iran have taken as many as a million barrels a day of oil off world markets. A full resumption in Iranian exports, according to a report this week by Bernstein Research, would reduce crude prices by 9 percent — or nearly $9 a barrel — although such a development is unlikely for many months at best. 

“The market fundamentals don’t support $100-a-barrel oil except for the political risk factors, and the biggest one — Iran — appears to be easing,” said Michael Lynch, president of Strategic Energy and Economic Research, a consulting firm. “The suppression of Iranian oil sales seems likely to diminish and therefore the market will become increasingly glutted.”
The rule of thumb of many economists is that every $10 drop in the price of a barrel of oil increases economic growth by 0.2 percent to 0.3 percent, as long as a broad economic slowdown does not shave consumer and business spending. 

There are limitations to how low oil and gasoline prices can go. Saudi Arabia and other Persian Gulf states need high oil prices to pay for social programs that ease political tensions, and they can always cut production to firm up prices. Saudi Arabia, which had been pumping at record levels to compensate for lost Iranian exports, cut back its output slightly in October and may reduce production some more if Iranian oil exports flow again.
Still, developments closer to home are also bringing down oil and gasoline prices. United States domestic oil production has increased by about 40 percent over the last four years, adding 2.5 million barrels a day to the market — an amount that is almost exactly equivalent to the total supply disruptions amounting from the sanctions on Iranian exports and the production and export blockages in Libya, Syria and recently parts of Iraq. 

United States benchmark oil prices have been dropping faster than the international Brent benchmark in recent weeks, as crude inventories built up in the nation’s heartland where the shale oil drilling frenzy is strongest. Some Canadian crude can be bought at prices below $50 a barrel because of surplus supplies in the United States, while Bakken crude from North Dakota is priced at about $80 a barrel, still well below international price 

“Cheaper gas prices are being passed along to American drivers because North American crude prices have become disconnected from world crude prices,” Mr. Kloza of GasBuddy said. 

Inventories at the large Gulf of Mexico refineries have crept up 15 percent since January, and with exports of gasoline and diesel slowing to Mexico and Venezuela, large inventories of petroleum products could continue to build and further depress prices.