Fuel prices may keep rising as tensions persist with Iran, UTEP economist says

Gasoline in El Paso has risen roughly $0.61 over the past 10 days, and UTEP economist Tom Fullerton estimates each $1/bbl rise in WTI adds about $0.03/gal locally; he expects regular gasoline to likely trade between $3.30 and $4.00/gal for the foreseeable future. Fullerton cites disruption to shipping near the Straits of Hormuz (estimating ~90% of traffic closed) and damage to oil facilities as drivers of tighter supply; continued Iran-related disruption could push oil prices higher and risk tipping the U.S. economy toward recession.

Analysis

The immediate market lever is freight and delivery economics: reduced seaborne throughput forces longer routing and higher tanker/time‑charter rates, which in turn acts like a per‑barrel tax on delivered crude — an incremental $3–8/bbl input cost to marginal refiners is plausible within 2–8 weeks if shipload displacements persist. That dynamic sharply magnifies outcomes for assets that earn margin on throughput (coastal/midstream/refiners) versus assets that rely on absolute production (onshore US shale can be slow to reprice at the margin).

Second‑order winners are firms with spare storage, optionality in crude slate (heavy vs light) and access to arbitrage windows (PADDs and coastal docks) because they can capture widened crack spreads and physical basis dislocations over the next 1–3 quarters. Losers are high‑fixed‑cost transport/consumer businesses (regional airlines, short‑haul logistics) that cannot pass through fuel cost spikes quickly; expect operating margin compression of ~200–400bps in the following two quarters unless hedges kick in.

Catalysts that extend the move are discrete military escalation or large, sustained sanctions that keep sea lanes impaired; catalysts that reverse it are coordinated SPR releases, rapid rerouting normalization, or a swift surge of US shale + tanker repositioning restoring ~0.5–1.0 mbpd of effective supply within 60–120 days. The tradeable implication: near‑term pnl will be dominated by volatility in freight, crack spreads and prompt physical availability rather than headline crude price alone — position sizing and convexity to volatility should be the primary hedging focus.

Key Decisions for Investors

• Long US coastal refiners (ticker: MPC) — implement a 3‑month call spread sized 1–2% NAV (buy/ sell strikes to limit cost) to capture widening crack spreads; target 2:1 payoff if Brent stays >$85 for 30+ days, stop/close if Brent drops below $70 or cracks compress by 50%.
• Pair trade: long US E&P (ticker: PXD) / short regional airline (ticker: AAL) — size as a dollar‑neutral pair (1–1.2% NAV each) to express upstream margin capture vs demand sensitivity. Rebalance monthly; unwind if WTI < $70 for 30 days (cuts E&P upside) or if jet fuel hedge announcements reduce airline exposure.
• Volatility play: buy a 3‑month Brent call spread (CME/ICE) — allocate 0.5–1% NAV as a convex bet on escalation. Exit/leg into calendar spread if realized vol falls below 35% or if prompt/back month structure flips from backwardation to contango.
• Tactical short: short small‑cap regional logistics/short‑haul airline names (ticker: LUV or UAL depending on hedge effectiveness) for 1–2 quarters monitoring reported fuel hedge coverage; cap position at 1% NAV and cover if company discloses >75% forward fuel hedging for next 6 months.