SUPERNEWS

Macro

Drone Strikes May Spike U.S. Gas Prices Above $3.50

Drone attacks on Russian refineries could push U.S. gas prices over $3.50, impacting global oil supply and demand dynamics.

By Mackenzie Crow

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3/13, 20:08 EDT
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Key Takeaway

  • Drone attacks on Russian oil infrastructure could lead to higher U.S. gas prices, with potential impacts on the summer driving season.
  • Russia's need to import gasoline due to sanctions and refinery attacks may tighten global supplies, benefiting U.S. refiners.
  • U.S. retail gasoline prices expected to exceed $3.50 by Easter, amidst strained global refinery capacity and rising futures prices.

Drone Warfare and Global Oil Dynamics

Recent drone attacks on Russian oil refineries have introduced a new dimension to global oil market dynamics, potentially impacting U.S. gasoline prices ahead of the summer driving season. Tom Kloza, global head of energy analysis at the Oil Price Information Service, highlights the efficiency of drone warfare, where inexpensive drones can offset costly defenses. Ukraine's strategic targeting of Russia's oil infrastructure could lead to more than 1 million barrels per day of Russian refining capacity being idled, with repairs expected to take several quarters.

The Ripple Effect on U.S. Gasoline Prices

The attacks have raised concerns about Russia's ability to meet its gasoline needs, especially as it enters its driving season. With Western sanctions complicating Russia's ability to import gasoline, there's speculation that Russia might have to import gasoline from non-sanctioned companies and from great distances. This situation could tighten global gasoline supplies, potentially benefiting U.S. refiners if they can maintain high refinery utilization rates. Tom Kloza predicts U.S. retail gasoline prices could surpass $3.50 around Easter Sunday, influenced by both the drone attacks and one of the heavier refinery maintenance cycles in recent memory.

Market Reactions and Forecasts

Following the drone strikes, crude oil prices rose by 2.2%, with West Texas Intermediate climbing to $79.24 a barrel. The Energy Information Administration has revised its forecast for U.S. retail regular-grade gasoline to an average of $3.48 a gallon for the year, up 5% from its February forecast. The global capacity strain and the potential for Russia to become a gasoline importer could pressure OPEC+'s demand forecasts, suggesting a potential surge in oil demand.

Street Views

  • Tom Kloza, Oil Price Information Service (Neutral on the oil refining industry and gasoline prices):

    "This is a warfare where weapons that cost thousands of dollars can offset defenses that cost millions of dollars." "While gasoline has some specific issues to local or parochial standards, it is indeed a global market. Russia’s needs for motor fuel could haunt the 2024 driving season here in the U.S." "Strikes on storage tanks can be spectacular, but hitting crude-oil distillation units is essentially the bull’s-eye for this modern warfare." "Right now, most U.S. retailers are selling gasoline for only about 25 [cents a gallon] above cost."