US retail gasoline prices have again risen above $4 a gallon, reaching an average of $3.98 by July 16, and analysts expect them to exceed $4 within days, driven by renewed conflict between the US and Iran and continued tight fuel markets. This marks a nearly 20-cent increase in just 10 days, with some states like Michigan, Maine, and Pennsylvania already seeing prices above the $4 mark. The surge follows a brief period in June and early July when prices dipped below $4 and even $3.80 after a short-lived ceasefire.
Several factors contribute to these elevated prices. The ongoing US-Iran conflict has disrupted global energy shipments, particularly through the Strait of Hormuz, a critical route for approximately 20% of global oil supplies. Ukrainian drone attacks have significantly reduced Russia's fuel-making capacity, further tightening global supplies. Additionally, US oil refineries are prioritizing the production of jet fuel and diesel over gasoline, and record-high margins for converting crude oil into gasoline indicate strong market demand. Refineries are operating at maximum capacity, increasing the risk of unplanned outages that could lead to further price shocks.
This comeback to $4 gasoline raises concerns about a resurgence of US inflation, which had shown signs of slowing last month due to lower fuel prices. Higher gas prices translate to increased transportation costs, freight rates, and broader logistics expenses, eventually passing through to the prices of goods and services across the economy. While the current situation is not as severe as May, when prices averaged over $4.50 a gallon, the timing coincides with the peak summer driving season, meaning Americans will pay more for road trips, affecting household budgets and potentially posing a political challenge for the Republican Party ahead of midterm elections.
