The national average price of gasoline in the U.S. is expected to climb to $4 per gallon within the next 7-10 days, with some states potentially reaching this mark even sooner. This comes after a recent surge in crude oil prices, which increased by about 12% in the three days following the collapse of the U.S.-Iran ceasefire. As of July 14, the national average was $3.8590 per gallon, up from $3.79 a week prior, according to AAA data. GasBuddy's head petroleum analyst, Patrick De Haan, expects diesel prices to also reach $5 per gallon by the end of this week, possibly as soon as Friday.
The primary drivers behind this anticipated price hike are two fold: escalating tensions between the U.S. and Iran, leading to a re-imposition of a U.S. naval blockade on Iran and the paralysis of traffic through the Strait of Hormuz, a critical global oil supply route. Before the conflict, approximately 20% of global oil supplies flowed through this strait. Additionally, Ukraine's systematic attacks have significantly reduced Russian refining capacity, with up to 40% of it reportedly knocked out.
This "double whammy" of rising crude oil prices and shrinking global supply of refined products is intensifying the "pain at the pump" for motorists. The $4 per gallon mark was last crossed in late March following Iran's initial blockade of the Strait of Hormuz, with prices easing below that threshold in June after a memorandum of understanding between the U.S. and Iran. Higher fuel costs are also expected to impact inflation, which had shown signs of easing in June largely due to lower energy prices. Economists like Mark Zandi of Moody's Analytics warn that if hostilities continue and the Strait of Hormuz remains closed, global oil inventories will be further depleted, leading to spikes in energy prices and potential physical supply shortages.
Beyond the direct cost of fuel, higher gasoline prices will have a cascading effect on the economy. These increases feed into transportation costs, freight rates, and broader logistics expenses, which are then passed on to consumers through the prices of various goods and services. This would add further pressure on households already struggling with inflation. The number of tankers transiting the Strait of Hormuz reportedly fell to a two-month low on July 13.
Analyst Patrick De Haan also noted that U.S. gasoline demand in the third week of July is traditionally the peak for the year, but current demand is looking "weak" at 8.84 million barrels per day. If demand fails to exceed 9 million barrels per day, it could signal "demand destruction." Brent crude was trading at $84.48 per barrel and West Texas Intermediate (WTI) crude was below the $80 mark, at $79.30 per barrel.
