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At least for now, the situation at the gas pumps may be easing to some extent.
Oil prices plunged on Wednesday after the United States and Iran agreed to a two-week cease-fire that will allow oil tankers to pass through the Strait of Hormuz, and analysts say gas prices could start to fall gradually. West Texas Intermediate During the day Wednesday, crude oil futures were trading around $95, down from around $113 a day earlier. Similarly, brent Crude oil futures fell to about $95 from $109 on Tuesday.
“We expect conditions at the pump to ease some starting this weekend, and we could see a 10-20 cent per gallon drop in the coming weeks,” said Andy Lipow, president of Lipow Oil Associates in Houston.
“Of course, it’s all predicated on maintaining a ceasefire and not going back to war with Iran in two weeks,” Lipow said.
$4.16 per gallon nationally
Gas prices nationwide averaged $4.16 on Wednesday, according to GasBuddy. Before the Iran conflict began on February 28, that average was just under $3. However, it has risen further in recent years, reaching an average of $5.01 in June 2022 due to supply disruptions and increased demand due to Russia’s invasion of Ukraine.
While the current ceasefire with Iran is not a plan for lasting peace, “the market is hopeful that it will at least be the start of getting more oil into the market,” Lipow said.
The number of ships passing through the Strait of Hormuz has fallen from about 130 ships per day before the war to just six in March, according to the United Nations Conference on Trade and Development. Since Tuesday’s ceasefire, traffic through the strait has only trickled slowly.
Patrick de Haan, head of oil analysis at Gasbuddy, said if the Strait remains open for an extended period, “it will likely take weeks for oil prices to fall further significantly as supplies take time to sort out. This means it could take months for gas prices to return to normal levels.”
And it could take even longer, Lipow said. “Oil markets will not return to pre-conflict levels as they factor in heightened geopolitical risks in the Middle East,” he said. “If Iran was able to close the Strait of Hormuz once, it will be able to close it again.”
Summer could put pressure on prices
At the same time, several seasonal trends are also putting increasing pressure on prices. De Haan said gas stations have begun their annual transition to summer-blend gasoline, which is generally more expensive to produce and arrives just as demand increases due to spring and summer travel.
“The EPA requires less volatile blends during warmer months to reduce emissions, but this is more complex and costly for refiners,” De Haan said.
In addition, refineries often complete seasonal maintenance, which could temporarily limit supply, he said.
In other words, the combination of continued uncertainty in the Persian Gulf region and normal demand growth means gas price easing is likely to be gradual.
And if the ceasefire doesn’t hold or a peace deal isn’t reached and the U.S. continues its war with Iran, “prices will rise again,” Lipau said.
