New Sanctions Could Affect Oil, Gasoline Prices
Retailers could see higher rack prices, compressed margins if oil prices climb.
Sep 19, 2019 | 2 min read
WASHINGTON, D.C.—President Trump Wednesday announced he would order new sanctions on Iran following the weekend attack on a Saudi oil field, according to CNN.
It wasn't immediately clear what new sanctions would be applied, and analysts said the announcement may indicate the White House’s desire to avoid military conflict prior to the 2020 elections. The United States ratcheted up sanctions on Iran after withdrawing last year from a multi-nation nuclear deal that constrained Iran's nuclear activity.
“The key concern for retailers will be if sanctions affect oil prices. History shows that when oil prices climb, rack prices and ultimately retail prices follow suit. Past experience demonstrates that rack prices typically go up faster than retail prices due to competitive conditions in the market, which has resulted in compressed margins,” said John Eichberger, executive director for the Fuels Institute. For more information on retail fuel prices, see “The Price Per Gallon” in NACS Daily.
Meanwhile, Saudi Arabia is attempting to move beyond the worst oil disruption in its history. The damaged facility, which pumped almost 10% of the world’s oil, has partially restarted and the production capacity will be back to normal within months. However, progress has been slower than was expected, reports Bloomberg, and crude oil prices remain elevated as traders factor in higher risks for Saudi supply.
“We managed to contain the damage by recovering more than half of the production that we had lost during that terrorist attack,” Energy Minister Prince Abdulaziz bin Salman said in a news briefing. “The company will be able to meet all its commitments to customers this month by drawing on its crude oil reserves.”
The facility should return to pre-attack levels of about 4.9 million barrels by the end of September, he said. Industry insiders believe the facility will take months to fully recover from the attack. Saudi Arabia hopes to pump 9.8 million barrels a day in October which is in line with recent production. Full output capacity of 12 million barrels a day will only be available at the end of November, with about 11 million restored by the end of this month, said Abdulaziz.
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