Rising Gasoline Prices Threaten to Take a Bite Out of US Growth

06/19/2014 10:30 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

According to the US Energy Information Administration, the price of gas rose again this week, and MoneyShow's Jim Jubak thinks the reason for the increase can be summed up in one word; Iraq.

Not that a US economy that showed a 1% contraction in the first quarter needs any more in the way of headwinds.

But gasoline prices climbed this week, the US Energy Information Administration said yesterday. The average price at the pump for gasoline climbed to $3.686 a gallon, up 1.2 cents from the prior week. The price increase is more significant than the tiny absolute increase suggests because this is the time of year when gasoline prices usually fall, as refineries crank up operations for the summer driving season.

The reason for the increase boils down to one word, Iraq. The price of oil climbed $2.49 a barrel in the period of the gasoline survey and is up $4.88 in the 30 days that ended on June 17.

Predicting how the military situation in Iraq will develop over the next few weeks is extremely difficult. Terrorist forces of the Islamic State of Iraq and Syria have captured Iraq's largest oil refinery at Baiji. Baghdad's forces are trying to take back the refinery, the location of 40% of the country's refinery capacity. (Baiji is about 120 miles north of Baghdad.) Kurdish troops have moved to protect the Kirkuk oilfield in Iraq's north and, so far, the southern oil fields remain under Baghdad's control. The southern oil fields are the source of 75% of Iraq's oil production and of almost all of the country's oil exports. In May, Iraq exported 2.6 million barrels a day, all from the south, the country's oil ministry said on June 1.

Speculation is that the price of gasoline could climb by 10 cents a gallon for the summer driving season on anticipation of a $15 to $20 a barrel increase in the price of crude.

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