A Slippery Outlook for Oil

Political tensions in Iran and Nigeria may crimp supply and send prices shooting back up. But if trouble is avoided, expect a drop

Iran may be enriching uranium, but it ain’t enriching American drivers. The escalating dispute over Iran’s nuclear program has pushed the price of crude oil to nearly $70 a barrel, close to the all-time high hit last year when Hurricane Katrina washed over the Gulf Coast.

Combined with a host of other factors, the Iran standoff is raising prices at the pump. The national average price for regular gasoline hit $2.68 on Apr. 10, according to the Energy Dept. And experts say it could touch $3 before Memorial Day if tension with Iran worsens or there’s a major supply problem elsewhere in the world.

That’s the bad news. The good news is that while April and May prices are superhigh, gasoline prices could actually drop a bit this summer from today’s levels if there’s no geopolitical blowup. In fact, on the New York Mercantile Exchange, wholesale gasoline for delivery in July and August is running cheaper than the same stuff scheduled for delivery next month.

PRICE JUMP. Speculators are betting right now on supply shortfalls. Prices will fall if the speculators’ hopes are dashed and summer gasoline supplies turn out to be sufficient, says James “Jim” Ritterbusch of Ritterbusch & Assoc. in Galena, Ill. Says Ritterbusch: “This is a seasonal pattern that we often go through.”

Business Week