The effects of the turmoil in Iraq have started to drive oil prices higher. Whether coincidental or not, gas prices have recently risen across 26 states. Among them is California, where gasoline prices are already above $4, based on an average of the cost of a gallon or regular.
In a month, oil prices (NYMEX futures for July) have risen above $107, up from $102 a month ago. The trend has accelerated in the past four days and shows no sign of abating. Oil baron T. Boone Pickens recently told CNBC that the price could reach $150 to $200 without Iraq’s supply. That would translate into a gasoline price of between $5 and $6 for an average gallon of regular, if gas prices rise in lockstep with oil. They rarely do, exactly, because of refinery and transportation costs. However, the impact of the price of oil is by far the largest contributor to gas prices.
Gas prices, which currently average $3.65, according to GasBuddy, are above $3.80 among many of the largest states based on population. These include California, which has 38.3 million residents and an average price of $4.09, Illinois with its 12.9 million residents at $4.03, Michigan with 9.9 million residents at $3.95, New York with 19.5 million residents at $3.90 and Ohio with 11.6 million residents at $3.86. Among them, these states are home to 92 million Americans, which is close to a third of the U.S. population.
Among the largest concerns about gas prices is not just how high they will rise, but how quickly. A very rapid move to above $4 nationwide would damage consumer spending, particularly among middle and lower income families and households in which people must drive to get to their jobs. Since recent GDP data show an American economy that is still growing slowly, the risk of a stalled expansion cannot be ruled out.
Tensions in Iraq have grown worse over the past few days as Sunni militia have taken an increasingly larger part of the country and as the chances that Iran will aid the existing government rise. Those factors cannot help buy drive oil prices higher. Oil prices of $110 are just around the corner. The worry is that the figure will go much, much higher.