The conflict in Iran is sending shockwaves through global energy markets, and American consumers are about to feel it at the pump. Oil prices are surging fast, and the question is no longer whether gas prices will hurt: it’s how badly.
Nate Silver, who is famous for ‘calling’ the 2008 election, published an article today detailing why gas prices are ‘set to go vertical.’
Let’s dive into just how bad the price of gas could get in the coming weeks and compare it to historical extremes.
Gas Prices Just Surged 16% in A Week
According to AAA, the national average gas price has jumped to $3.45 per gallon today. One week ago, the average was $2.98 per gallon — a 16% spike in a single week. For context, the all-time record average was $5.016 per gallon, set on June 22, 2022.
How high could prices go? Nate Silver cites Polymarket data putting the odds of gas prices exceeding $4.50 by the end of March at 63%, with a 34% chance prices breach $5.00. Put another way, that’s a 34% chance oil prices tie the AAA’s all-time high.
One note of caution, while prediction markets have generally been very good at predicting future outcomes, there is still just $40,000 bet on the price of gas by the end of March. That is to say, this is a pretty small market and could be skewed by smaller bets.
Right now, the price of gas ranges dramatically across America.
- In California, the average is $5.159 per gallon.
- On the other end of the spectrum, Kansas’ price per gallon is just $2.911.
The skew to more expensive states is more extreme. Kansas is 16% cheaper than the national average. California is 50% more expensive. Washington state, Oregon, Nevada, and Hawaii are the only other states where gas prices average more than $4 per gallon.
If the betting on Polymarket’s prediction markets proves accurate and gas does surge to $4.50 per gallon by the end of March, that would be a 30% jump from today’s prices. If California saw a jump in line with national averages and gas prices hit a new record, consumers in the state could be paying more than an astounding $7.50 per gallon (and that’s just for regular gas!).
Of course, oil markets are dynamic, and there’s no assurance any part of the country would jump more or less than the average, but it is worth noting how much higher prices could get in the next month.
Could It Get As Bad as 2007?
The worst gas prices many consumers remember came right before the Great Financial Crisis. Oil hit a record $147.27 per barrel in July 2008. But the US was a very different energy player then — producing just approximately 5 million barrels per day, roughly 6% of global output.
Today, the US produces 22.8 million barrels per day — 20% of global supply — more than double Saudi Arabia’s output. So why are prices spiking?
Iran isn’t just threatening its own 4.6 million barrels per day — it’s threatening to shut down the Strait of Hormuz, which would choke off supply from Saudi Arabia (10.8 million barrels/day), the UAE (4.5 million), Iraq (4.5 million), Kuwait (2.8 million), and Qatar (1.8 million). That’s an enormous volume in a finely balanced global market.
WTI crude futures have already moved from $66 per barrel on February 20 to $90.90 today, per CNBC. The oil shock has already arrived. The pain at the pump is just getting started.
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