Higher prices surprised the U.S Energy Information Administration which had to raise forecast for summer gasoline prices to $2.90 from the estimate of $2.73 two months ago. Oil prices are rising on outlooks of a tightening global oil market, despite the release of robust OPEC data regarding production. In the meanwhile, average U.S. retail gasoline prices are climbing toward $3 a gallon, roughly the highest price in three years. The national average was around $2.86 at the end of last week.
Analyst believe that economic growth has boosted demand for oil. Yet, it is also conflicts the Middle East that could fuel higher prices. Especially given recent US involvement with the US embassy, consequences remain to be seen. Should prices continue to rise, U.S growth could face some headwinds. Airline, delivery companies among others depend on lower prices for their margins. Another factors that might be affected are measures of inflation and therefore interest rates. Historically, the Federal Reserve attempted to ignore volatile energy prices.
Should the trend continue for the longer term, investors might be able to expect the opposite to happen as in 2014; instead of driving more and buying less fuel-efficient cars, driving could decrease and the switch to compact and electric vehicle accelerate. Caps to the forward price do exist given the United States’ increasing prominence as an oil supplier - Production reached 10.7 million barrels per day and is expected to continue increasing.
Keith Knutsson of Integrale Advisors commented, “In the long-term the U.S economy is flexible, and I see very little impact, but in the short term we might see these trends affect corporate earnings and consumers alike.”