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As the conflict with Israel expands, many people are worried about the price of oil skyrocketing. However, due to a lack of reliance on Middle East production, increasing global production and decreasing demand for oil should help to keep prices steady.
After the Iran missile attack on Israel, oil prices increased by 3%. According to some experts gas prices in the U.S. could increase by 10 to 15 cents per gallon. Continued conflict could continue to increase prices, as Iran controls the strait of Hormuz where 15% of the global oil passes through. The strait of Hormuz has already faced the Houthi attacks, and more strain on the ports could reduce output. However, the price of oil is still significantly below the high prices of 2022. With prices rising from $71 to $76 a barrel of oil last week, they are still well below the highs of 2024 of almost $90 and 2022 highs of $120.
With the threat of attacks on Iran’s main oil export growing, the output of Iran’s oil exports could decline. However, Iran only produces 2 million barrels of oil a day which is about 2% of the global production. Significantly reducing the impact on the global markets. Current sanctions on Iran are also reducing the impact future interruptions could have on the market. With most of Iran’s oil sales going to China, they would feel the largest impact of any disruptions. Iranian attacks on other countries could have larger impacts on the global markets.
Demand for oil in China has started to wane, decreasing their reliance on Iranian oil. It is projected that demand for gasoline in China will peak this year. Weak economic output and a shift to more electric vehicles have decreased demand. So far in 2024, oil demand in China has decreased by 1.7% or 280k bpd. With consumption decreasing for the fourth straight month. If China is unable to get oil from Iran, there would be an increase in competition for oil from other sources pushing prices higher. But they could be offset by the decrease in demand.
The increase in production of oil in the United States can also offset any disruptions in the Middle East. In 2023 the United States produced almost 13 million barrels a day, hitting new highs according to the US Energy Information Administration. According to Timothy Fitzgerald, a US economist, the US exports more oil than it imports and would face no lasting impacts of a conflict in the Middle East.
As demand for oil in China starts to decrease, supply around the world has started to increase. For example, Guyana, a small country in Latin America, is projected to double its economy by 2028 due to its new oil revenue and grow by 115% in the next five years. Guyana’s economy is projected to grow 38% this year according to the International Monetary Fund. Their oil production is projected to grow from its current rate of 390k barrels per day to over a million, after the discovery of a 6.6-million-acre oil deposit found off the coast, estimated to hold 11 billion barrels according to ExxonMobil. This has led Guyana to become the fastest-growing country in the world. As more deposits are found around the world, reliance on oil from any one country will decrease helping to keep oil prices lower and less volatile.
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