The energy industry is keeping an eye on tensions in the Middle East, but so far the markets have remained stable and prices have even dropped amid the conflict.
After rising 6% on June 22, the price of a benchmark barrel of U.S. crude oil fell by the afternoon of June 23, erasing that increase and dropping 7.2%, according to Reuters.
“The market took that as, ‘OK, the retaliatory measures by Iran are going to target military installations of the United States, not oil infrastructure,” said Tom Seng, assistant professor of professional practice in energy at Texas Christian University’s Ralph Lowe Energy Institute.
Oil investors have been concerned Iran could react in a way that would somehow interrupt the oil supply from that country, Seng said.
Iran was the fourth-largest crude oil producer in OPEC in 2023, with 24% of oil reserves in the Middle East, according to the Energy Information Administration.
However, Iran’s production has been limited because its oil sector has been subject to underinvestment and international sanctions for several years, according to an Energy Information Administration report.
Outside of oil production, Seng said, there was also some concern that Iran could block oil traffic in the Strait of Hormuz, the only sea passage from the Persian Gulf to the ocean.
“That would be a suicidal kind of thing,” Seng said. “You would have a multinational response, including from China, because they have a vested interest in the freighters going through.”
Seng said investors were considering a “worst-case scenario” kind of thing and that drove prices up.
Now, prices have gone the other way, which so far, looks good for consumers, he said.
“For now, at least, it appears as though high oil prices will not occur and be sustained by this conflict,” he said.
While crude oil prices are trending down for the second straight week, the nation’s average price of gasoline has increased, rising 9.7 cents compared with a week ago, according to data from GasBuddy, a fuel and power consulting company. Prices in Texas increased 12 cents per gallon over the week, according to the data.
“With Israel and Iran trading attacks over the past week, oil prices have continued to climb — and gasoline prices are following suit, rising at a pace we haven’t seen since last summer,” said Patrick De Haan, head of petroleum analysis at GasBuddy, in a statement.
“For now, motorists should anticipate a continued steady climb in prices, with the national average likely to increase another 7 cents to 15 cents this week, while diesel could rise by 10 cents to 20 cents,” he said.
For the state’s oil and gas industry, the fact that oil prices have dropped below the $70 a barrel threshold is problematic, Seng said.
“That $70 a barrel is sort of the ‘Goldilocks price,’” Seng said, referring to the price where most oil and gas companies can see a decent profit on their investments.
“Now we’re flirting with a price per barrel under $70,” he said. “If that sustains itself, you may start to see some impact, some mergers and that sort of thing. There’s no doubt people in the industry are watching this closely because we’re right on the tipping point.”
Bob Francis is business editor for the Fort Worth Report. Contact him at bob.francis@fortworthreport.org.
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