Violence in Iraq is helping to make gasoline in the U.S. more expensive, depriving drivers of the usual price break between Memorial Day and July Fourth.
Global oil prices have risen 5 percent since an insurgency took over two Iraqi cities. Any sustained increase in oil and gasoline prices can damp economic growth.
In the U.S., the average price of $3.68 per gallon is the highest price for this time of year since 2008, the year gasoline hit its all-time high. The good news is that gasoline is not likely to spike above $4 as it did 6 years ago, experts say. Or even cross $3.90, as in 2011 and 2012.
“You are going to pay a little more than we thought you were going to pay,” says Tom Kloza, chief oil analyst at the Oil Price Information Service and GasBuddy.com. “But you are not going to see any apocalyptic numbers.”
Gasoline prices typically fall in the weeks following Memorial Day, after supplies increase enough to fill up the cars of the nation’s vacationers as summer approaches. Prices have declined during the previous three Junes, by an average of 21 cents per gallon, according to AAA.
This year, drivers are paying more. The average has risen every day for a week, and is now higher than it was on Memorial Day — with more increases sure to come.
Higher fuel costs can reduce economic growth — in the U.S. and around the world — because they raise costs for businesses and leave drivers with less money to spend on other things.
In the U.S., a ten-cent rise in the price of gasoline only costs a typical driver an extra $1.50 to fill up a tank, but if that rise is sustained over a year it costs the U.S. economy $13.5 billion.
Cheaper than 2013
The average gas price so far this year, however, is still 5 cents cheaper than it was last year over the same period.
Even before violence in Iraq broke out, gasoline prices were falling more slowly than expected because of rising U.S. fuel demand and extensive maintenance at some Gulf Coast refineries that reduced gasoline output.
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Iraq’s largest refinery attacked
The price of oil climbed on Thursday as the violence gripping energy producer Iraq continued to weigh on supply fears, with global crude pushing higher after hitting a nine-month high.
Army troops and Islamic militants battled for control of Iraq’s largest oil refinery, which by late Wednesday remained in government hands. All of the facility’s output is used domestically so crude production and exports aren’t affected but the violence underscores how the fighting may threaten the energy infrastructure that Iraq is rebuilding to meet global demand.
The price of benchmark crude for July delivery rose 57 cents to $106.54 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 39 cents to settle at $105.97 on Wednesday, the first time in a week it finished under $106 after a U.S. Energy Department report showed supplies dropped far less than expected last week.
Brent crude, used to price international oils, rose 30 cents to $114.56 a barrel in London, a day after it added 81 cents to close at its highest level since September.
In other energy futures trading: