Gasoline prices are displayed outside of a Shell gas station in West Hollywood, California on April 14. Prices vary around the country, and are highest on the west coast; the nationwide average has risen by more than $1 per gallon since the start of the Iran War, but is expected to drop if a decrease in crude oil prices is sustained.
Patrick T. Fallon/AFP via Getty Images
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Patrick T. Fallon/AFP via Getty Images
The price of oil dropped significantly on Friday following Iran’s announcement that the Strait of Hormuz was once again open to commercial traffic.
Brent crude, the global standard, fell to about $90 per barrel, which is more than $10 less than the previous week. U.S. crude dipped below $85 per barrel, having previously exceeded $110 during the conflict.
If these prices remain steady, motorists might soon witness a decrease in fuel costs, according to Patrick De Haan, chief petroleum analyst at Gasbuddy. During a virtual event, he suggested that the national average for gasoline, currently over $4 per gallon, could drop below $4 by the weekend and might reach $3.65 to $3.85 per gallon within a week or two.
Typically, there is a delay between the drop in crude prices and the reduction in gasoline prices since gas stations have already purchased fuel at higher costs and seek to recover those expenses. However, wholesale gasoline markets have already started to reflect lower prices shortly after the futures markets, which is unusually quick.
“There’s an element of immediate relief,” De Haan stated. “And more relief will be coming in a month or two when things really start to get fully back on line.”
Prices are still volatile and a full recovery will take time
Despite the recent decline, oil prices remain above pre-war levels, which were approximately $60. There is still a risk that the Middle East conflict might escalate, causing oil prices to rise again.
Even if peace is maintained, the market disruption cannot be immediately resolved.
The interruptions to trade through the Strait of Hormuz and the attacks on oil infrastructure in the Middle East have caused significant volatility in crude prices, leading to a $1 increase per gallon on average for gasoline. De Haan predicts that by Labor Day, approximately half of this price surge could be reversed.
Returning to an average gasoline price below $3 per gallon will likely take even longer. “For every day that we’ve been at this, it may take a week for a lot of this to unwind,” De Haan explained. “So, you know, 47 weeks: That may take until later this year or early next year to really fully normalize.”
Rystad Energy, an energy consultancy, has estimated that repairing the damage to oil and gas facilities in the Middle East could cost up to $50 billion. Even facilities that have not been damaged can take weeks to resume production, as they are not designed for quick shutdowns and restarts.
Even after production resumes, transporting crude oil and fuels around the world on tankers takes weeks.
“Reopening the Strait of Hormuz eases the near-term squeeze on oil markets, but it’s not a full reset,” Angie Gildea, head of oil and gas at KPMG, stated in an email to NPR. “Damage to gas infrastructure and delayed production mean the price impact could linger for months, even if headline risks fade.”
