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Global oil prices spike to four-year highs

Prices at the pump are on the rise.
Prices at the pump are on the rise. (Michael S. Williamson/The Washington Post)
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Global oil prices on Monday topped $80 a barrel for the first time in four years as a confluence of world events, including the renewed sanctions against Iran, stifle global supply.

The surge on Monday comes after a weekend report from JPMorgan Chase that forecast oil prices could spike to $90 a barrel in upcoming months, especially if the United States does not allow its trading partners to buy Iranian oil.

“There is something of a perfect storm,” said energy analyst Pavel Molchanov of Raymond James, citing the Iran sanctions, strong global demand and production declines in Venezuela and Libya as reasons behind higher oil prices.

Gas prices, likewise, have risen to their highest levels in four years at about $2.85 for a gallon of regular gas compared with $2.57 a year ago, something that is acutely felt by many voters, according to AAA.

President Trump was a frequent critic of the Obama administration when gas prices climbed in 2012, tweeting “Gas prices are at crazy levels — fire Obama!” The national average price of gasoline in 2012 was $3.60 a gallon, which is the most expensive annual average on record to that time.

With critical elections looming, Trump has tweeted several times, including just last week, calling for the Organization of the Petroleum Exporting Countries to widen its spigots to increase production and reduce oil prices. But the jawboning has had little impact on oil markets.

JPMorgan cited geopolitical risks that could push the price of oil toward $90 a barrel, including the trade war with China, NAFTA negotiations and particularly the chance of “a major miscalculation from sanctions” against Iran.

Trump plans to reimpose sanctions on Iran in November as he withdraws the United States from the Iran nuclear deal, potentially removing a significant oil supplier from the market.

Global demand is strong at more than 100 million barrels a day. Venezuela, once a key world supplier, has seen production decline dramatically in recent years. Iran sanctions have taken a bite out of production, and Libyan violence this past summer interfered with production, Molchanov said.

On top of all that, U.S. producers, which have pushed domestic production to an all-time high of 11 million barrels a day, have slowed drilling activity after pressure from investors to spend less.

The result is a very tight sliver between worldwide supply and demand. That means any increase in demand or a decline in production in some corner of the world can send prices upward.

“Our view is prices will stay elevated for an extended period of time, at least three to four years,” Molchanov said.

Oil prices have been on a roller coaster over the past decade. They peaked in the $140s a decade ago. They dipped down to $26 a barrel in 2016 and danced in the $30 range for a while. But mostly the prices bobbed in the $40-to-$50-per-barrel range from 2015 through late 2017.

Oil prices began to rise out of the doldrums about a year ago, after self-imposed production limits by Saudi Arabia, the de facto leader of OPEC, and non-OPEC producer Russia began to take effect.

Prices for benchmark Brent Crude — which is used by most of the world — crept into the $70s by last fall and are now punching through the $80 mark.

Companies and oil-producing countries think $80 is a good price for a barrel of oil because it allows them to earn more profit without discouraging consumption. But higher oil prices mean high gasoline prices at the pump.