Oil and gas executives have warned the White House that gasoline prices could surge in coming months as fuel inventories fall to critical lows, complicating the Trump administration’s efforts to contain inflation that has already rattled American consumers.
Industry officials say they are doing everything they can to sound an alarm that prices are about to soar as the commercial and government inventories that have mitigated price rises so far are rapidly depleting, according to multiple people familiar with the conversations, who spoke on the condition of anonymity for fear of retaliation from the administration. Some inventories could be wiped out within weeks, the executives have warned, coinciding with the peak summer travel season.
“I have absolutely no doubt the White House — from the president on down — is fully aware of the nearly universal alarm among oil companies and analysts about the direction of travel for oil prices this summer,” said Bob McNally, who was an energy adviser in the George W. Bush administration and founded the research firm Rapidan Energy Group.
The warnings underscore the rising political and economic risks confronting President Donald Trump as the conflict with Iran drags into its fourth month, with little indication that a diplomatic breakthrough is imminent, despite periodic White House predictions of progress.
Already Trump’s administration is confronting the highest rate of inflation in three years, which has led to a significant drop in his standing among voters and deepened concern among Republicans about widespread losses in the midterm elections, which could cause them to lose control of one or both houses of Congress.
The Labor Department’s consumer price index rose at a 4.2 percent annual pace in the year ending in May, driven by surging gas prices.
Trump has publicly brushed off concerns about the rising prices. “I love it. I love the inflation,” Trump told reporters Wednesday when asked about the new figures. Oil prices will drop “like a rock” once the war concludes, he said.
Industry executives suggest otherwise.
The war with Iran has snarled the Strait of Hormuz, the waterway that transported about one-fifth of the world’s oil and natural gas supplies before the war. Trump has repeatedly sought to assure the public that he is close to a deal to reopen the strait, but that has not happened.
Senior oil executives who typically avoid making alarming projections in public have been doing exactly that.
“We’re sounding the alarm on these inventories going to record lows,” said American Petroleum Institute CEO Mike Sommers on “Mornings with Maria,” a Fox Business program that Trump frequently watches. “We should be concerned about what prices we’re going to see over the next few weeks. We have to solve this problem in the Strait of Hormuz.”
Industry officials, who spoke on the condition of anonymity to avoid antagonizing the White House, said the administration’s reception to their worries has been mixed. Some officials, they say, are taking the posture that the warnings are hollow. Prices have not shot up toward $200 a barrel, despite warnings since the war against Iran started in late February that they would quickly head there.
The U.S. Strategic Petroleum Reserve has dropped to 349.2 million barrels, approaching a multi-decade low last seen in 1983. The exact date reserves start to run dry can be difficult to calculate, because they cannot be run all the way down.
Millions of barrels of oil need to remain in pipelines and refineries to keep the systems from breaking down. Analysts and industry executives warn the critical moment could come anywhere from the end of this month to closer to the end of summer. But they are universally anxious about how quickly the supply is declining.
Industry models show the collapse of crude inventories within a matter of weeks could push the cost of oil up by 50 percent or more — sending the price of gas at the pump soaring past $5 per gallon. Oil executives worry that will send the administration scrambling to impose emergency measures like restricting the export of U.S. fuel.
A senior White House official said more information from the industry “is good,” and the administration will continue to take information from oil and gas executives into account.
“But that is one piece of a larger picture that only the president has,” said the official, who spoke on the condition of anonymity for fear of retaliation.
The price of gas has “consistently gone down for the past couple of weeks,” the official said. The official attributed that to steps the administration has taken to ease prices, including waiving the Jones Act, which governs the ships that can serve U.S. ports, and coordinating the release of 172 million barrels from U.S. reserves.
The national average for a gallon of gas on Wednesday was $4.15, down from $4.52 a month ago, according to data from AAA. The prices fell in part because of reports of peace negotiations in the conflict with Iran, but the latest exchange of attacks has jeopardized a fragile ceasefire.
“The president is focused on finishing the job,” the official said. “We have heard projections again and again throughout this entire conflict that the price would jump higher and higher, that the price of crude barrel would be $150 or $200, or the average price of oil would be upwards of $5. None of that has played out.”
Other administration officials are frustrated that the industry has not moved faster to drill more and expand domestic production to create a buffer, some of the people said.
But companies have been reluctant to invest too heavily in multibillion-dollar drilling operations, which would not yield substantially more barrels for months when the administration is expressing confidence that the strait will reopen within days.
“Both camps know exactly what is at stake,” said one industry official who frequently interacts with the administration. “The industry folks are intent on making sure that if the worm turns, the White House does not point fingers that the industry did not do enough.”
“Everyone everywhere fully appreciates that the standoff cannot go on for another 30-45 days without the political calculations changing,” the official said.
“The White House knows and understands the severity of the potential situation. … They are politically constricted from saying that publicly.”
The potential for a dramatic price hike that would ripple around the world does not align with Trump’s narrative that the United States holds all the cards in negotiations and that oil disruption is but a minor, short-lived inconvenience.
A further hike could carry political consequences for Trump, whose allies now acknowledge the risk that a prolonged conflict poses to the Republican Party’s prospects in the midterms.
“High oil price is like a tax on the economy, and it’s a tax on the incumbent party,” said economist Steve Moore. “This is why Trump is so eager to get this done.”
Trump said that he had conducted a secret military operation to remove 100 million barrels of oil that were stuck in the strait. Military officials said his remark referred to a previously announced plan to share information with shipping companies about safe routes through the waterway.
Experts tracking movement of oil on through the strait say that some shipments have gotten through, but the volumes are extremely limited and do not do very much to solve the inventory problem.
Before the war, some 130 tankers traversed the strait daily. Even if White House claims that dozens of tankers are slipping through each week are accurate, that would amount to only a fraction of the crude moving through the strait before. Ship-monitoring data suggests the White House claims are exaggerated.
“The president is making a remarkably dubious claim,” said Brett Erickson, managing principal at Obsidian Risk Advisors, which specializes in financial crime and sanctions, and is closely monitoring oil shipments in the Persian Gulf. “And even if some ships are getting through, this is not a long-term solution. Are we going to perpetually be the chauffeur for the Gulf?”
Even if some stranded oil can be smuggled out, ships cannot get back into the strait to reload.
“They don’t even need to hear from us directly to know there is a problem,” said an executive with a major oil company. “There is no shortage of people out there saying this publicly. The inventories are at historic lows.”
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