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Some relief at the gas pump may be on its way, at least for now.
With oil prices plunging Wednesday after the U.S. and Iran agreed to a two-week ceasefire that could allow oil tankers to pass through the Strait of Hormuz, gas prices may start slowly coming down, analysts say. U.S. West Texas Intermediate crude futures were trading at about $95 mid-day Wednesday, down from nearly $113 a day earlier. Similarly, Brent crude futures tumbled to about $95 from $109 on Tuesday.
“I expect some relief at the pump starting this weekend, and we might see a decline over the next couple of weeks of between 10 and 20 cents per gallon,” said Andy Lipow, president of Lipow Oil Associates in Houston.
“Of course, that’s all predicated on the ceasefire holding and we’re not back at war with Iran in two weeks’ time,” Lipow said.
$4.16 per gallon nationally
Gas prices were at a national average of $4.16 on Wednesday, according to GasBuddy. Before the Feb. 28 start of the Iran conflict, that average was just under $3. But it’s also been higher in recent years: the average reached $5.01 in June 2022 due to a supply disruption from Russia’s invasion of Ukraine and increased demand.
While the current ceasefire with Iran is not a plan for lasting peace, “the market is anticipating that the ceasefire is at least a start to get more oil to market,” Lipow said.
Ship transits through the Strait of Hormuz dropped to just six per day in March from about 130 pre-war, according to the United Nations Conference on Trade and Development. Since the ceasefire on Tuesday, there has only been a continued slow trickle of traffic through the strait.
If the strait remains open long-term, “it would likely take oil several weeks to fall more substantially as supply will take time to sort out, which could mean it could take a couple months for gas prices to get back down to normal levels,” said Patrick De Haan, head of petroleum analysis for GasBuddy.
And, it could take longer, Lipow said. “The oil market isn’t going to return to pre-conflict levels because they’re going to price in higher geopolitical risk in the Middle East,” he said. “If Iran was able to shut down the Strait of Hormuz once, they could do it again.”
Summer can pressure prices
At the same time, a couple of seasonal trends are also increasingly putting pressure on prices. Gas stations have generally started their yearly shift to summer-blend gasoline, which is more expensive to make and arrives just as demand is increasing due to spring and summer travel, De Haan said.
“The EPA requires a lower-volatility blend in warm months to reduce emissions, which is more complex and expensive for refiners to make,” De Haan said.
Additionally, refineries are often wrapping up their seasonal maintenance, he said, which can temporarily limit supply.
In other words, the combination of continued uncertainty in the Persian Gulf region and normal increased demand translates to a likely slow easing of gas prices.
And if the ceasefire doesn’t hold or lead to a peace agreement and the U.S. continues its war with Iran, “you’re going to see prices spike, again,” Lipow said.
