TIME Iran

These 5 Facts Explain the State of Iran

Secretary of State John Kerry, Iranian Foreign Minister Javad Zarif and others wait for a meeting at the Beau Rivage Palace Hotel on March 27, 2015 in Lausanne, Switzerland.
Brendan Smialowski—Reuters Secretary of State John Kerry, Iranian Foreign Minister Javad Zarif and others wait for a meeting at the Beau Rivage Palace Hotel on March 27, 2015 in Lausanne, Switzerland.

Sanctions, demographics, oil and cyberwarfare

As leaders in the United States and Iran maintain laser focus on the ongoing nuclear negotiations, it’s valuable to take a broader look at Iran’s politics, its economy, and its relations with the United States. Here are five stats that explain everything from Iran’s goals in cyberspace to its views of Western powers.

1. Sanctions and their discontents

Sanctions have taken a heavy toll on the Iranian economy. According to the Congressional Research Service, Iran’s economy is 15 to 20% smaller than it would have been without the sanctions that have been enacted since 2010. They leave Iran unable to access nearly four-fifths of the $100 billion in reserves the country holds in international accounts. Iran’s oil output has fallen off a cliff. Four years ago, Iran sold some 2.5 million barrels of oil and condensates a day. Over the last year, the country has averaged just over a million barrels a day. Even as the exports have fallen and the price has plummeted, oil still accounts for 42% of government revenues. Iran’s latest budget will slash spending by 11% after accounting for inflation.

(Bloomberg, The Economist)

2. Cyber-spending spree

But despite the belt-tightening, Tehran has been willing to splurge in one area. Funding for cyber security in the 2015/16 budget is 1200% higher than the $3.4 million allotted in 2013/14. Up until 2010, Iran’s chief focus in cyberspace was managing internal dissidents. But after news of the Stuxnet virus—a U.S.-led cyberattack on Iran’s nuclear program—went public in 2010, Iran’s leaders shifted gears. According to one estimate, Iran spent over $1 billion on its cyber capabilities in 2012 alone. That year, it conducted the Shamoon attack, wiping data from about 30,000 machines belonging to Saudi oil company Aramco. In 2013, the Iranian Revolutionary Guard publicly declared that Iran was “the fourth biggest cyber power among the world’s cyber armies.”

(Global Voices, Wired, Strategic Studies Institute, Wall Street Journal)

3. New generation and old leadership

The median age in Iran is 28, and youth unemployment in the country hovers around 25%. Nearly seven out of ten Iranians are under 35 years old, too young to remember the Iranian revolution of 1979. But the country is controlled by older men, many of whom had an instrumental role in the revolution. Supreme Leader Ayatollah Ali Khamenei is 75 years old; there have been concerns about his health and Iran’s eventual succession plan. Iran’s Assembly of Experts is an opaque institution with huge symbolic importance: it is tasked with selecting and overseeing Iran’s Supreme Leader. The Assembly’s Chairman passed away in October at the age of 83. His replacement? Ayatollah Mohammad Yazdi, who is…83 years old.

(New York Times, CIA World Factbook, BBC)

4. The feeling is mutual

Over 70% of Iranians view the United States unfavorably—and 58% have “very unfavorable” views. On the flip side, more than three-quarters of surveyed Americans have unfavorable views of Iran. But that’s a more modest stance than some other European powers: 80% of French and 85% of Germans have unfavorable views of Iran. According to recent polls, Iran is no longer considered “the United States’ greatest enemy today.” In 2012, 32% of those polled chose Iran, good for first place. In 2015, just 9% selected Iran, placing it fourth behind China, North Korea and Russia, respectively.

(Center for International & Security Studies, Pew Research Center, Vox)

5. Support for a deal?

Negative views of Iran haven’t undermined Americans’ desire to try and cut a deal: 68% of Americans favor diplomacy with Iran. It’s a bipartisan majority: 77% of Democrats and 65% of Republicans are in favor of talks. Iranians have mixed expectations: only 48% think that President Rouhani will be successful in reaching an agreement. But if we do see a final deal, a lot more than Iranian oil could open up. Western businesses would love to break into a country that is more populous than Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman, Israel, Bahrain, Lebanon and Jordan combined.

(Center for International & Security Studies, CNN survey, CIA World Factbook)

TIME energy

Oil Council: Shale Won’t Last, Arctic Drilling Needed Now

Arctic Oil Drilling
Al Grillo—AP In this 2007 file photo, an oil transit pipeline runs across the tundra to flow station at the Prudhoe Bay oil field on Alaska's North Slope.

A new study from the Energy Department advisory council says the U.S. should begin Arctic drilling

(WASHINGTON) — The U.S. should immediately begin a push to exploit its enormous trove of oil in the Arctic waters off of Alaska, or risk a renewed reliance on imported oil in the future, an Energy Department advisory council says in a study to be released Friday.

The U.S. has drastically cut imports and transformed itself into the world’s biggest producer of oil and natural gas by tapping huge reserves in shale rock formations. But the government predicts that the shale boom won’t last much beyond the next decade.

In order for the U.S. to keep domestic production high and imports low, oil companies should start probing the Artic now because it takes 10 to 30 years of preparation and drilling to bring oil to market, according to a draft of the study’s executive summary obtained by the Associated Press.

“To remain globally competitive and to be positioned to provide global leadership and influence in the Arctic, the U.S. should facilitate exploration in the offshore Alaskan Arctic now,” the study’s authors wrote.

The study, produced by the National Petroleum Council at the request of Energy Secretary Ernest Moniz, comes at a time when many argue the world needs less oil, not more. U.S. oil storage facilities are filling up, the price of oil has collapsed from over $100 a barrel to around $50, and prices are expected to stay relatively low for years to come. At the same time, scientists say the world needs to drastically reduce the amount of fossil fuels it is burning in order to avoid catastrophic changes to the earth’s climate.

The push to make the Arctic waters off of Alaska more accessible to drillers comes just as Royal Dutch Shell is poised to restart its troubled drilling program there. The company has little to show after spending years and more than $5 billion preparing for work, waiting for regulatory approval, and early-stage drilling. After assuring regulators it was prepared for the harsh conditions, one of its drill ships ran aground in heavy seas near Kodiak Island in 2012. Its drilling contractor, Noble Drilling, was convicted of violating environmental and safety rules.

Environmental advocates say the Arctic ecosystem is too fragile to risk a spill, and cleanup would be difficult or perhaps even impossible because of weather and ice.

“If there’s a worse place to look for oil, I don’t know what it is,” says Niel Lawrence, Alaska director for the Natural Resources Defense Council. “There aren’t any proven effective ways of cleaning up an oil spill in the Arctic.”

But global demand for oil, which affects prices of gasoline, diesel and other fuels everywhere, is expected to rise steadily in the coming decades — even as alternative energy use blossoms — because hundreds of millions of people are rising from poverty in developing regions and buying more cars, shipping more goods, and flying in airplanes more often.

In order to meet that demand and keep prices from soaring, new sources of oil must be developed, the council argues. The Arctic is among the biggest such sources in the world and in the U.S.

The Arctic holds about a quarter of the world’s undiscovered conventional oil and gas deposits, geologists estimate. While the Russian Arctic has the biggest share of oil and gas together, the U.S. and Russia are thought to have about the same amount of crude oil — 35 billion barrels. That’s about 5 years’ worth of U.S. consumption and 15 years of U.S. imports.

The council’s study acknowledges a host of special challenges to drilling in the Arctic, including the sensitive environment, the need to respect the customs and traditions of indigenous peoples living there, harsh weather and sea ice.

But the council, which is made up of energy company executives, government officials, analysis firms and nonprofit organizations, says the technology and techniques needed to operate in the region are available now, and the industry can safely operate there. The report contends the industry has developed improved equipment and procedures to prevent a spill and clean up quickly if one occurs.

The council makes a number of suggestions designed to make U.S. Arctic development more feasible. They include holding regular sales of drilling rights, extending the amount of time drillers are allowed to work each year, and doing more scientific studies of the wildlife in the region to ensure it is disturbed as little as possible.

“It’s important to have good information to make these decisions,” says Jason Bordoff, director of Columbia University’s Global Energy Policy. “We need to make sure we’re doing this in the right way.”

MONEY Oil

Two Big Reasons You Won’t Be Spending More On Gas Anytime Soon

Shaybah oilfield complex, in the Rub' al-Khali desert, Saudi Arabia, November 14, 2007.
Ali Jarekji—REUTERS Shaybah oilfield complex, in the Rub' al-Khali desert, Saudi Arabia.

Chinese demand doesn’t seem to be improving, and Saudi Arabia is actually boosting production.

The beleaguered oil industry was hit with a double dose of bad news on Tuesday, which initially sent oil prices down. On the supply side, Saudi Arabia continues to make good on its refusal to cut its production, instead, it actually boosted production close to an all-time high. Meanwhile, weaker than expected demand in China doesn’t appear to be improving as factory data from the world’s top oil importer slipped to an 11-month low. Unless these two trends reverse course both could continue to put pressure on oil prices in the months ahead.

Gushing supplies

Saudi Arabia is making it abundantly clear that it has no intention of cutting its oil production to reduce the current glut of oil on the market. This past weekend its OPEC governor, Mohammed al-Madi, said that the market can forget about a return of triple digit oil prices for the time being. That statement was backed up by the country’s oil production data, which according to a Reuters report is now up to 10 million barrels per day. Not only is that near its all-time high, but its 350,000 barrels per day more than the country told OPEC it would produce last month. In fact, as we can see in the following chart the Kingdom’s oil output has steadily risen over the past few decades and is nearing its previous peak from the 1980s.

Saudi Arabia Crude Oil Production Chart

Typically the Saudi’s are the first to cut oil production when the market has too much supply. However, this time it’s more concerned with keeping its share of the oil market that it’s willing to flood the market with cheap oil in order to slow down production growth from places like the U.S., Canada, and Russia. This is leaving the world short of places to put the excess oil asstorage space is quickly running low due to weaker than expected demand.

China continues to slow

To make matters worse, China, which is the world’s second largest economy and top oil importer, continues to see its economic growth slow suggesting its demand for oil could be even more tepid in the months ahead. The latest data out of China shows that factory activity is now at an 11-month low. This was after the HSBC/Markit Purchasing Managers’ Index was at 49.2 for March, well below the 50.7 mark from February. Not only is that below the 50.6 that economists had expected, but it’s now below the 50-point mark that separates growth from a contraction.

That’s bad news for oil prices because as the following chart shows China’s rapidly expanding economy has been a key driver of its surging oil demand over the past decade.

China Oil Consumption Chart

With China’s economic growth slowing down it’s leading to a slowdown in its demand for oil. That leaves robust global oil supplies with nowhere to go at the moment as demand for oil in Europe has been weakened by its own economic issues while the U.S. no longer needs as much imported oil thanks to efficiency gains as well as its own robust output. This will put pressure on oil prices as increased demand for oil from China was seen as a key for an oil price rally.

Investor takeaway

So much for peak oil as Saudi Arabia has now pushed its production close to its all-time high with no signs that it plans to tap the brakes. That’s coming at the worst possible moment as the oil market is oversupplied by upwards of two million barrels per day at the moment due to weaker than expected demand in China. Worse yet, Chinese demand could start to contract as its economic machine is notably showing down. This means that investors in oil stocks are in for more volatility as the market continues to work through its supply and demand issues.

Related Links

TIME Environment

America’s Second-Worst Oil Spill Is Still Scarring the Shores of Alaska

Exxon-Valdez spill
Chris Wilkins—AFP/Getty Images An oil skimming operation near the southwest end of Prince William Sound in April 1989 in Valdez, a week after the beginning of an oil disaster which occurred when the tanker Exxon Valdez ran aground on March 24, 1989

March 24, 1989: The Exxon Valdez runs aground, leaking 11 million gallons of crude oil

It was the worst man-made environmental catastrophe in U.S. history — that is, until five years ago, when it was eclipsed by a disaster roughly 20 times its scope. On this day, March 24, in 1989, the Exxon Valdez oil tanker ran aground in Alaska’s Prince William Sound and spewed an estimated 11 million gallons of oil into pristine arctic waters. Only the 2010 drilling-rig blowout in the Gulf of Mexico was worse; then, over the course of 87 days, more than 200 millions of crude oil gushed into the Gulf.

Twenty-six years ago, however, it was hard to picture a more destructive oil spill than the one in Prince William Sound. The oil slick fanned out as far as 500 miles from the tanker’s crash site and oozed along 1,300 mi. of shoreline. Tarred, feathered sandpipers and oil-coated otters featured in devastating nightly news footage. Salmon and eagle populations were decimated. Thousands of seals and a quarter of a million shorebirds died, per TIME. And despite a massive, multi-year cleanup effort that cost Exxon billions of dollars, the region is still suffering.

While the warm waters of the Gulf of Mexico teem with bacteria that have helped break down some of the crude unleashed by the 2010 Deepwater Horizon blowout, the icy waters of Prince William Sound inhibit decay, and oil patches that can be traced back to the Valdez still linger on remote beaches, just below the sand.

“The oil may not leak out in quantities that are immediately visible, but that doesn’t mean it’s not there,” one scientist told TIME in 2009, when random tests along the shoreline revealed that an estimated 20,000 gallons of oil remained. “We thought the cleanup would be a one-shot deal — but it’s still lingering.”

As of the spill’s 25th anniversary last year, only 13 of 32 affected wildlife populations and habitats monitored by the government since the spill were listed as “fully recovered” or “very likely recovered,” according to CNN. Some were listed as “not recovering,” including the herring population, once the source of a booming fishery, and a pod of killer whales that lost 15 of its 22 members after the spill and is expected to die off completely in the coming years.

While the lessons learned in the Alaskan cleanup may have led to a better response to the spill in the Gulf, the most enduring lesson is that maritime oil spills are devastating even with the best possible response.

“Whether it’s Prince William Sound or the Gulf of Mexico, seldom is more than 10 percent of the spilled oil recovered,” Alaskan writer Marybeth Holleman concluded in a CNN opinion piece. “This will be especially true in Arctic waters. And regardless of how safe we make oil drilling, tankers, or pipelines, we’ll never reduce spill risk to zero.”

Read TIME’s 1989 cover story about what really happened on the Exxon Valdez, Fateful Voyage

TIME Libya

ISIS Allies Try to Cut off Libya’s Oil Revenue

A fighter from Misrata shouts to his comrades as they move to fight ISIS militants near Sirte March 15, 2015.
Goran Tomasevic—Reuters A fighter from Misrata shouts to his comrades as they move to fight ISIS militants near Sirte March 15, 2015.

The militants are trying to undermine opponents as the country descends further into chaos

A series of attacks by militants linked to the Islamic State of Iraq and Syria (ISIS) on Libya’s oilfields is threatening to further undermine chances of stability in a country gripped by a multi-sided armed conflict.

ISIS, the militant group that took control of parts of Syria and Iraq last year, has found footholds in Libya as a result of a power vacuum engendered by civil war. Now the group’s own attacks on the country’s crucial oil infrastructure are denying resources to its rivals and creating conditions that could help it expand.

“The Islamic State is trying to use the disunity of Libyans, and the fact that there is fighting going on between rival armed groups to target Libya’s only source of income, Libya’s national wealth represented by the oil facilities,” said Mohamed Eljarh a Libya-based fellow with the Atlantic Council think tank.

“By attacking the oil sector in Libya, they will ensure that any unity government will be deprived of much of the funds they need to buy the weapons they need to face this group.” he said.

The attacks forced the national oil company to shut down operations at 11 oilfields earlier in March. In one assault on the Ghani oilfield, the militants killed at least nine people and took several workers as hostages, including four Filipinos, an Austrian, a Bangladeshi, a Czech, a Ghanaian, and one unidentified person. Libya’s overall oil production dropped to a reported 325,000 barrels per day in January, down from 1.7 million per day before the 2011 uprising.

Oil, along with the central bank and other elements of state infrastructure, has also become a focus of conflict between the warring parties, who are divided into two broad camps aligned to two competing parliaments, one in the capital Tripoli and the other — internationally recognized — in Tobruk. Powerful militias from the city of Misrata recently sent some 3,000 men in a bid to take control of the oil port at Sidra, currently controlled by forces of former rebel leader Ibrahim Jathran.

ISIS-aligned militias have also emerged as a rogue factor in Libya’s larger political conflict in which two rival governments and their allied militias are locked in an ongoing battle for control. Neither of the two main political groupings has been able to strike a decisive blow against the other. Neither has been able to dislodge ISIS from its local bases.

Among those strongholds, the city of Sirte has emerged as a flashpoint in the current crisis. ISIS controls key neighborhoods in the city. Its artillery-mounted pickup trucks patrol the streets and its black flag is flying over a large convention center, according to Claudia Gazzini, a Libya-based analyst with the International Crisis Group.

Sirte and its environs is also where ISIS militants kidnapped at least 20 of the 21 Coptic Christians whose execution they announced in a graphic online video in February. The city is also thought to be the base for attacks on the oilfields in the desert to the south.

In one such raid in February, gunmen killed the guards on the perimeter of an oilfield, then rounded up the workers, lecturing them on the Islamic State’s notion of “true Islam,” according to officials who briefed Gazzini. The attackers threatened the facility’s manager: Tell no one of this for six hours, enough time to allow the attackers to escape. Then they left, taking everything they could: Cars, equipment, guns.

Subsequent attacks have unfolded in a similar style. In each raid, Gazzini says, “They’ve gone in, looted, and gone out.”

“These are targets of opportunity for them, given the proximity to Sirte. It’s a strategy of disruption,” said Frederic Wehrey, an analyst with the Carnegie Endowment for International Peace. “They’re trying to raise their stature through these spectacular attacks and increase visibility and attract recruits.”

The ISIS presence has been a source of mounting concern for the militias in nearby Misrata. On March 14, Misratan forces clashed with ISIS fighters in Sirte, reportedly killing 25 members of the local ISIS affiliate.

“The Misratan commanders told me we’re going to have to confront this threat eventually,” said Wehrey in an interview last week. “They were reluctant to go in with force because of tribal blowback, that this would trigger some kind of tribal feud.”

Meanwhile, the identity of the militants joining ISIS is a subject of dispute among Libya’s factions. Many in the broad camp allied with Tripoli assert that ISIS includes supporters of the former regime of Muammar Qaddafi, which was brought down in an armed, NATO-supported uprising in 2011.The ICG’s Gazzini says there is evidence to suggest that some Qaddafi loyalists may have joined forces with ISIS. Unlike some armed groups that take a hard line against members of the old regime, ISIS has reportedly projected a message in Libya that anyone is welcome to join, provided they pledge loyalty and accept the group’s doctrine.

“Maybe some are faking it, but also the IS rhetoric appeals to a group of former regime officials who somehow felt persecuted in these last few years,” says Gazzini. “The message Dashis [ISIS] might have been projecting out was that of acceptance as long as they repent for their sins.”

MONEY Oil

What to Do When Oil Prices Sink (Again)

oil derrick
Alamy

An abundance of oil in storage and not enough demand from refineries could send oil prices plunging this spring.

After a steep drop late last year the price of oil has stabilized over the past month to right around $50 per barrel. However, that stability might not last long as there are signs on the horizon that the oil industry could be in for another leg down. That has some analysts suggesting that oil could hit $30 per barrel before rebounding later this year.

Growing concerns

In the International Energy Agency’s, or IEA, monthly report released this week it said it sees near-term trouble for oil prices. According to the Agency, its concern is that the U.S. might soon run out of spare storage capacity, which will put pressure on the price of oil this spring. The report noted that “on the face of it, the oil price appears to be stabilizing. What a precarious balance it is, however.” The report then went on to note, “[B]ehind the facade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly.”

Those aren’t exactly encouraging words for oil executives or energy investors. It’s leading to some dire short-term predictions for the oil price. For example, Goldman Sachs’ GOLDMAN SACHS GROUP INC. GS -1.6% president, Gary Cohn, said he thinks that crude could fall to as low as $30 per barrel this spring as storage capacity tightens up leaving fewer buyers of oil. It’s also not helping matters that demand for oil in the U.S. is lower in the spring as refineries switch over from producing home heating oil to summer blend gasoline. This leads to less demand for oil each spring, which could exacerbate this year’s oil glut with no other outlet for U.S. oil due to the export ban.

Longer-term gains

All that being said, there are also signs that once the U.S. gets past the spring glut it could see a sharp rally in the oil price later this year. That’s because U.S. oil producers have dramatically cut spending to drill new wells, suggesting that production should plateau and could even begin to decline by year end.

We’ve already seen this in North Dakota, which is the country’s second largest oil producing state. According to the state’s Department of Mineral Resources, oil production in the state peaked at a record high of 1.23 million barrels a day in December. However, in January, production slipped 3.3% to 1.19 million barrels as producers only completed 47 new wells to start the year compared with 183 well completions the month before. That trend toward lower well completions is expected to continue throughout the year as most producers in the state have cut spending by 50% or more as a result of the oil price plunge.

Meanwhile, global oil demand is now rising a bit faster than projections after failing to meet demand projections last year. The IEA raised its demand forecast for the second half of this year by 75,000 barrels per day bringing total projected global oil demand up to 93.5 million barrels per day for the year. This is as lower oil prices have helped spur demand for oil. In fact, even Europe saw its declining demand for oil rebound, as it was up 3.2% last December and up again by 0.9% in January.

This all suggests that the oil price could rally later this year as stronger than forecasted demand is met by a decline in supplies. Further, if OPEC does decide to trim its output at its June meeting it could hasten a rebound in the oil price.

Investor takeaway

The price of oil could be under a lot of pressure this spring as U.S. oil storage capacity fills up. However, the longer-term outlook is a bit more bullish as there are some signs that U.S. oil production is starting to slow its rapid growth with declining production in former growth darlings like North Dakota. That, combined with some recovery in demand could push oil prices meaningfully higher later this year. So, if you’re thinking about buying oil stocks, this spring could be the last great opportunity to buy near the bottom.

Related Links

TIME Oil

The Real (and Troubling) Reason Behind Lower Oil Prices

green-gasoline-pump
Getty Images

It isn't supply and demand, as most people believe

I am obsessed with how the top tier of finance has undermined, rather than fueled, the real economy. In part, that’s because of I’m writing a book about the topic, but also because so many market stories I come across seem to support this notion. The other day, I had lunch with Ruchir Sharma, head of emerging markets for Morgan Stanley Investment Management and chief of macroeconomics for the bank, who posited a fascinating idea: the major fall in oil prices since this summer may be about a shift in trading, rather than a change in the fundamental supply and demand equation. Oil, he says, is now a financial asset as much as a commodity.

The conventional wisdom about the fall in oil prices has been that it’s a result of both slower demand in China, which is in the midst of a slowdown and debt crisis, but also the increase in US shale production and the unwillingness of the Saudis to stop pumping so much oil. The Saudis often cut production in periods of slowing demand, but this time around they have not. This is in part because they are quite happy to put pressure on the Iranians, their sectarian rivals who need a much higher oil price to meet their budgets, as well as the Russians, who likewise are on the wrong side of the sectarian conflict in the Middle East via their support for the Syrian regime.

Sharma rightly points out, though, that supply and demand haven’t changed enough to create a 50% plunge in prices. Meanwhile, the price decline began not on the news of slower Chinese growth or Saudi announcements about supply, but last summer when the Fed announced that it planned to stop its quantitative easing program. Sharma and many others believe this program fueled a run up in asset buying in both emerging markets and commodities markets. “Easy money had kept oil prices artificially high for much longer than fundamentals warranted, as Chinese demand and oil supply had started to turn back in 2011, and oil prices have now merely returned to their long-term average,” says Sharma. “The end of the Fed’s quantitative easing has finally pricked the oil bubble.”

If this is the case, the fact that hot money could have such an effect on such a crucial everyday resource is worrisome. And the fact that the Fed’s QE, which was designed to buoy the real economy, has instead had the unintended and perverse effect of inflating asset prices is particularly disturbing. I think that regulatory attention on the financialization of the commodities markets will undoubtedly grow; for more on how it all works, check out this New York Times story on Goldman’s control of the aluminum markets. Amazing stuff.

Correction: The original version of this story misidentified Ruchir Sharma. He is the head of emerging markets for Morgan Stanley Investment Management.

Read next: The U.S. Will Spend $5 Billion on Energy Research in 2015 – Where Is It Going?

Listen to the most important stories of the day.

TIME Transportation

Crude Oil Train Derails and Catches Fire in Illinois

Oil Train Derailment Illinois
Mike Burley—Telegraph Herald/AP Smoke and flames erupt from the scene of a train derailment near Galenda, Ill. on March 5, 2015.

No injuries have been reported

A 105-car freight train derailed in Illinois Thursday night, and at least two of the 103 cars loaded with crude oil were set ablaze.

The train derailed in a rural area near Galena, Ill. and no injuries have been reported. Local officials announced a voluntary evacuation for residents within a one-mile radius of the site. At least five cars derailed from the train, which originated in North Dakota.

Freight railroad network BNSF said in a statement that the cause of the derailment was unknown and that the company would help local residents whose property was damaged or who needed help temporarily relocating.

The federal government is working on new regulations for rail safety in the wake of a string of explosions from derailed oil trains, as Oilprice.com recently reported:

Safety on the rails is critical because of the surging volumes of oil moving on the nation’s railways. An estimated 400,000 barrels of oil were transported by railcar in 2013, a dramatic jump from just 11,000 barrels in 2009, according to data from the Association of American Railroads.

The federal government has been criticized for taking way too long to issue new safety standards. The Department of Transportation proposed new rules in August, but has now twice pushed off finalizing those rules, missing the original deadline at the end of 2014.

Another train carrying crude oil derailed in West Virginia less than a month ago, setting off a large fire and causing evacuations.

MONEY Oil

3 Reasons Gas Prices Could Rocket Higher

150304_INV_GasPricesHigh
Scott Olson—Getty Images Members of the United Steelworkers Union and other supporting unions picket outside the BP refinery.

Unfortunately, the days of $2 gas appear to be in the rearview mirror.

Well, we had a nice run. After 123 straight days of falling gasoline prices, sending it below $2 a gallon in many states, we’ve come back to reality a little bit. In fact, gas prices have now risen each and every day for about a month. Unfortunately, gas prices could go a lot higher because of three storm clouds that appear to be on the horizon, which could combine to send gas prices rocketing higher.

Storm cloud No. 1: Rising oil prices

The dramatic drop in the price of oil in late 2014 caused gas prices to come down as well. We see this correlation in the following chart:

Brent Crude Oil Spot Price Chart

 

As we see there, the price of oil is down 45% over the past year, while the price of gasoline is down 32%. However, we can also see that both have bounced off of their bottoms from earlier this year. That’s because the price of oil has stabilized and is now starting to head higher as the oil market starts to see signs that it is working out some of its supply/demand imbalance issues.

Because those issues are being addressed, the oil market is now starting to point to a higher oil price later this year. That’s a recipe for higher gas prices, which is just what the U.S. Energy Information Administration is predicting, as we can see on the chart below.

Storm cloud No. 2: The big switch

One other thing you might have noticed from that above chart is that the price of gasoline is notably more lumpy than the price of oil. It’s something most of us notice at the pump each year as gas prices almost always rise in the spring. That’s because summer driving season is upon us, which leads to more demand for gasoline.

However, what really drives the price of gas up isn’t so much increased demand for gasoline in the summer, but the fact that oil refineries need to shift gears in the spring to focus on refining summer-blend fuels as opposed to winter-blend gasoline and home heating oil. Along with this switch, refiners also tend to undergo routine maintenance in the spring, which reduces their refining capacity. This adds up, and over the past few years on average, this has added $0.54 per gallon to the cost of gasoline each spring.

Storm cloud No.3: The picket line

This year, there’s a new wrinkle that could throw a wrench in the spring refinery maintenance season. The refining industry is currently at odds with the United Steelworkers union as the two have failed to reach an agreement on a new contract. As the dispute grows, workers at a dozen U.S. refineries have walked off the job, putting 19% of U.S. refining capacity at risk. The strike could continue to expand, as neither party is giving much ground on the disputed issues. This could lead to up to 63 refineries, which represent two-thirds of refining capacity, being affected by the strike.

So far, the strike has only resulted in one refinery in California being shut down, and that’s just because it was already undergoing maintenance, and its owner decided not to run the plant. However, shortly thereafter, an explosion at another California refinery took that facility offline, too, and cut the state’s refining capacity by 25%. This resulted in gas prices spiking in Los Angeles by $0.50 per gallon. This suggests that should the growing labor dispute lead to refineries across the nation shutting down, it could cause a big spike in what we pay at the pump.

Bottom line

Unfortunately, the days of $2 gas appear to be in the rearview mirror. Even without the rally in the oil price over the past few weeks, gas prices would have headed higher because of the normal spring switchover at refineries. However, this year, the price of gas could be under even more pressure to rise because of the possibility of a continued increase in the price of oil, and the possibility that the refinery strike causes a big portion of refining capacity to be taken offline.

I know that’s not the greatest of news, but if gas prices do spike, at least you’ll know why. And it’s a good reminder that instead of complaining about gas prices, an investment in the oil industry could offset some of the extra costs we’ll be paying at the pump and take away a bit of the sting of spiking prices.

MONEY Gas

Where Gas Prices Shot Up Nearly $1 Per Gallon in One Month

A cyclist rides by a sign at a gas station in Los Angeles posting the latest gas prices on Friday, Feb. 27, 2015. Gas prices in California soared overnight as a result of a combination of supply-and-demand factors worsened by the shutdown of two refineries that produce a combined 16 percent of the state’s gasoline.
Nick Ut—AP A cyclist rides by a sign at a gas station in Los Angeles posting the latest gas prices on Friday, Feb. 27, 2015.

Everyone is paying more at the pump lately. But California drivers have seen gas prices soar at an unbelievably fast pace.

In mid-January 2015, the national average for regular gasoline was $2.03 per gallon, and there seemed to be a strong possibility that gas stations would average under $2 nationally within weeks, or even days. Instead, that period marked what appears to be the bottoming out of the cheap gas era. After four months of consistently plummeting fuel costs, drivers began seeing gas prices inch up steadily—and then spike very recently.

Over the past week, the national average has crept up 2¢ daily, from $2.33 to $2.47 as of Monday, according to the U.S. Energy Information Administration. AAA data indicates that gas prices have risen 35 days in a row, for a total rise of 39¢ nationally.

While all drivers are paying more for gas than they did in the very recent past—more than a dozen states were averaging under $2 per gallon a month ago, but none are today—California has experienced an extraordinarily fast hike in prices at the pump. Apparently, an explosion at one oil refinery in the state brought about enough of a decrease in supply to send gas prices skyrocketing.

As of Tuesday, the average in California for a gallon of regular was $3.41, a rise of 96¢ over the past month and 43¢ during the last week alone. Nationally, gas prices are averaging a full $1 less than they were one year ago, even after the recent pricing surge. But in California, prices are only 45¢ cheaper than they were exactly 12 months ago, when the average was $3.86.

All signs indicate that drivers in California and all over the country will continue to be hit with rising gas prices. GasBuddy analysts forecast that prices will increase steadily during the next six to eight weeks, and AAA is predicting, “the national average price of gas could rise by 20 cents per gallon or more in March” alone.

Still, to put things in perspective, let’s not forget that gas prices averaged well over $3 nationally for entire years, and it seemed like a very big deal when the average dipped under $3 last fall.

“The good news is that most U.S. drivers should still pay less than $3 per gallon to fill up their cars this year,” AAA spokesperson Avery Ash said this week.

Not if you’re in California though.

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