AAA – Gas Price Rise Due to Several Factors

Gas prices at many central Ohio gas stations jumped Tuesday to $3.59 a gallon. AAA says the primary reason for the recent increase in retail gasoline prices is increasing crude oil prices.

West Texas Intermediate (WTI) crude oil hit its lowest settlement price of of the year on June 28 when it settled at $77.69 per barrel. Since then a number of factors, described below by AAA, have caused crude oil to increase. Early Wednesday morning the price was $89.06 per barrel.

AAA says that as this more expensive crude oil makes its way through the markets it leads to an increase in retail gasoline prices.

Tensions with Iran:

Tensions are once again building between Iran and western countries. Earlier this month, Iran lashed out against western sanctions, which aimed to reduce imports of Iranian crude oil, by drafting a bill to obstruct cargoes moving through the Strait of Hormuz. Iran has also been conducting military drills for possible strikes on Israel or U.S. military sites.

During the second week in July, the Iranian government responded to another round of increased U.S. sanctions on Iran with renewed threats to close the Straight of Hormuz. About one-third of global seaborne oil passes through this route, so these threats raise concerns about future oil supply. Supply concerns lead to increasing oil prices.

Global Economic Data:

Global economic and demand concerns pressured prices lower this spring. While many of these these concerns still remain, recent economic news has overshadowed them and helped fuel a rise in crude oil prices.

One positive economic headline of note comes out of China. The country recently reported better-than-expected economic data, which has helped to calm some concerns of a weakening Chinese economy. Stronger global economies would be expected to demand more crude oil, which puts upward pressure on prices.

On Tuesday, Federal Reserve Chairman Ben Bernanke was expected to announce a new round of quantitative easing, which would drive the value of the dollar lower and inspire more investment in commodities. (As it turned out, Bernanke did not mention anything about this in his speech).

Oil futures are traded in U.S. dollars. As the value of the dollar decreases, commodities, including crude oil, become relatively less expensive to purchase and are a more attractive investment, which puts upward pressure on prices.

Tight Gasoline Supplies In Some Markets:

Summer gasoline supplies have been tight recently, specifically int he New York Harbor market. Ohio gets some of its gasoline from this market.

AAA provides daily price averages for gasoline at http://FuelGaugeReport.AAA.com.