US average retail gasoline prices dipped below $4 a gallon, reaching $3.997 on Sunday, a first since mid-April. This decline is attributed to a preliminary agreement between the US and Iran, which sparked optimism about the reopening of the Strait of Hormuz, a critical global oil shipping lane. According to GasBuddy data, the national average is down 52.4 cents from a month ago, though it remains 90.8 cents higher than the same period last year. The American Automobile Association (AAA) reported the national average on Monday at $4.065.
Crude oil prices reacted sharply to the news, falling more than $4 a barrel on Monday. WTI crude was down $4.72 to $80.16 and Brent crude fell $4.30 to $83.03, both reaching their lowest levels since early March. This represents an $11.50 per barrel, or roughly 12%, drop in a single week. The most common US gas price encountered by motorists was $3.79 per gallon. This drop in fuel prices could provide relief to the administration and consumers, after prices had surged above $4 in late March following Iran's blockage of the Strait of Hormuz, contributing to consumer inflation rising above 4% in May.
Experts caution that this relief might be fragile. While President Donald Trump stated the Strait of Hormuz would be fully reopened after a formal signing ceremony on Friday, analysts like Patrick De Haan of GasBuddy note that it could take weeks for shipping traffic to normalize due to the complex process of mine removal. Bjarne Schieldrop, SEB chief commodities analyst, described the US-Iran memorandum as a "fragile structure" that could easily break down. Furthermore, the US gasoline market faces a looming supply crunch, with robust domestic demand and fuel exports straining already thin inventories. Gasoline stocks in the first week of June fell to 215.1 million barrels, the lowest seasonal level in a decade, according to government data.
Tom Kloza, chief energy advisor of Gulf Oil, warned that the current reprieve could be short-lived if substantial progress isn't made on clearing the strait, reinstating insurance on vessels, and curbing violence by Iranian proxies. Despite the recent decline, analysts suggest it could still take months for shipping and refining to normalize, and crude prices remain over 20% higher than when the conflict began and over 40% higher than at the start of the year. However, if the current positive trend continues, GasBuddy's De Haan suggests the national average could continue to fall, potentially dropping below $3.75 per gallon by July 4 under an optimistic timeline.
