Why Isn’t the Price of Oil Even Higher?

Key Points:

• President Donald Trump's claim of having "total control over the Strait of Hormuz" is challenged by the reality that oil shipments through the Strait remain minimal without a deal with Iran, which is unlikely until he acknowledges the failed war.
• Despite expectations, oil prices have not surged above $100 per barrel; this is partly because the real cost increase is reflected in refined products like gasoline and diesel, whose prices have risen significantly.
• The "crack spread," or the price difference between crude oil and its refined products, has widened by about $35 per barrel due to limited refining capacity trapped in the Strait of Hormuz or disrupted by Ukraine's drone attacks on Russian facilities.
• The shortage of refining capacity has kept crude oil prices from rising further, as buyers are unwilling to pay more for crude they cannot refine, causing much of the price pressure to appear in refined product costs instead.
• For the U.S., this dynamic means inflation is expected to rise again soon, with gasoline and diesel prices already elevated, posing challenges ahead of the midterm elections and impacting the broader economic outlook.