Spend Matters welcomes another guest post from Awies Qureshi of Mintec.
As we get further into the summer months and the weather starts to heat up, so does the price of crude oil. The summer is the driving season and the increase in gasoline consumption means higher demand for crude oil. However, this year there are more than just driving habits causing prices to rise. Crude oil prices in the US have increased by nearly 10 percent since the start of the year, and the international benchmark rose over 5 percent in just the last month. So what’s to blame for the rise in prices?
At the start of the year, the abnormally cold weather in the northern and central parts of the US meant that more energy was needed to heat homes. The higher demand caused inventory levels at the key Oklahoma storage hub to drop to almost half since the start of the year. As a result, West Texas Intermediate (WTI) crude oilprices have been gradually rising since mid-January.
Recently though the weather has taken a back seat to other events. The escalation of a military campaign by insurgents in Iraq has caused concerns over crude oil supply. The key oil facilities in Iraq are located in the south, an area which is yet to be affected. So far exports and production have not been disrupted. However, rising concerns over the safety of oil facilities has led to major international oil and gas companies to start evacuating staff from Iraq.
It is difficult to predict the full impact these events may have on exports and prices. It is safe to say that we are not likely to see a drop in prices for a while, which could result in weaker US economic growth for the second half of the year.