Why ISIS Isn’t Affecting Gas Prices
When ISIS shocked the world with its rampage through Iraq in June, it also shocked oil prices. On June 19, the day after the group attacked Iraq’s largest oil field, the price of Brent crude, a global benchmark, hit a nine-month high of $115 a barrel.
Oil traders said that month that prices could go even higher, and that drivers would pay at the gas pump.
But five months later, the price of Brent has toppled to less than $80 a barrel. This week, it hit a four-year low. Gasoline prices across the country are averaging less than $3 a gallon, another four-year low.
The short answer is that ISIS didn’t have the impact many had feared, according to energy and foreign policy experts. Iraq is the second-largest oil producer in the the Organization of the Petroleum Exporting Countries (OPEC), but ISIS hasn’t captured the rich oil fields in the south. Iraqi security forces are holding out against ISIS at a refinery on the outskirts of Baiji, even as the two sides fight for control of the town.
There’s also the grim fact that oil traders expect a certain amount of Middle Eastern violence, says Anne Koren, co-director of the Institute for the Analysis of Global Security.
“Radical Islamists terrorizing places where oil is produced have been priced into the price of oil for a long time,” she said.
And while ISIS has strategically seized oil fields in order to fund its operations, the group only controls a small percentage of the world’s oil supply, which it mostly sells on the black market in Turkey at around $40 per barrel, according to a recent Newsweek investigation. Those sales — which could bring in a up to $3.6 million per day — are more important to ISIS than they are to global oil prices.
“World crude oil production is about 77 million barrels per day,” said U.S. Energy Information Administration spokesman Jonathan Cogan. “$3.6 million per day divided by $40 per barrel would indicate production of 0.09 million barrels per day, or 0.1 percent of world production. That would not be likely to have much impact on prices.”
ISIS’s market share is getting even smaller as U.S. air strikes target its smuggling operations, adds Robert McNally, founder and president of the energy consulting firm the Rapidan Group.
But energy analysts say the biggest factor affecting current oil prices is excess supply. The factors driving the glut include slowing global growth that has reduced demand, OPEC’s decision not to cut supply in response to the decreased demand, and soaring production in Libya, according to McNally.
U.S. crude oil production, meanwhile, shot up 30 percent from 2011 to 2013, according to Cogan. The numbers are also expected to increase this year, and projections for next year are rosy.
“Our current forecast puts 2015 production at 9.4 million barrels per day, which would be the highest annual average U.S. crude oil production since 1972,” Cogan said.