The average price of regular gas in the US has gone back above $4 per gallon on Monday, according to the American Automobile Association (AAA). The latest increase comes as fighting between the United States and Iran has become more intense.
Event Context
The conflict has disrupted oil shipments through the Strait of Hormuz, one of the world’s most important oil shipping routes. Before the conflict started, the average US gas price was around $2.98 per gallon. Now, the national average has crossed $4 per gallon again after fresh attacks by both the US and Iran.
WTI crude has also increased by around $12 per barrel this month. Higher oil prices usually make gasoline more expensive because fuel is made from crude oil. People in many countries, not just the United States, are paying higher fuel prices because of the conflict.
Expensive gasoline can also make groceries and many other everyday goods cost more because transportation becomes more expensive. Higher fuel prices could become a major issue for American voters before the US midterm elections. The rising prices are also creating political pressure on President Donald Trump and the Republican Party ahead of the November elections.
Ukraine’s recent drone attacks on Russian oil refineries have also affected global fuel supplies. Russia has even started importing gasoline after being a fuel exporter for many years, raising worries about global fuel shortages. Kloza said gasoline is part of a global market, so problems in one country can affect prices around the world.
Team Analysis
On June 14, the US and Iran signed a memorandum of understanding to temporarily stop fighting. After that agreement, gas prices dropped below $4 per gallon in mid-June. President Donald Trump had said he was unhappy because gas prices were not falling as fast as oil prices. The recent calm did not last long because Iran resumed attacks on ships trying to leave the Strait of Hormuz.
Also read: Why are US gas prices rising again? Iran conflict sparks fresh fuel price fears
Match Outlook
Kloza expects prices to rise another 10 to 25 cents per gallon over the next week because gasoline futures have already moved higher. Kloza said this increase is already “baked in,” meaning it is mostly expected by the market, according to CNN. He also said the Iran conflict is not the only reason for higher fuel prices.
The price increase is happening during the peak summer driving season in the United States, when fuel demand is at its highest. Strong summer demand is expected to keep gas prices under upward pressure through the Labor Day holiday.
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A year ago, Americans were paying about $3.14 per gallon on average. The $4 figure is a national average, so prices are not the same everywhere, according to AP. Some states have already been paying well above $4 for a long time, while others are still below that level.
Gas prices differ from state to state because of local fuel supplies, transportation costs and different state taxes. Gas prices first crossed the $4 mark on March 31, about a month after the conflict began, according to CNN. The $4 level is seen as an important psychological mark because drivers notice the increase more once prices reach that point.
In early May, gas prices climbed to a four-year high of $4.56 per gallon. Prices later started falling because investors hoped peace talks would reopen the Strait of Hormuz and allow oil tankers to move again.
The United States responded by launching attacks and placing a blockade on Iranian ports, according to CNN. These new military actions pushed oil prices higher again, leading to another rise in gas prices. The average US gas price has increased by about 13 cents over the past week.
Brent crude oil, the global benchmark, rose 3.2% to $90.95 per barrel on Monday. Brent crude also briefly moved above $90 per barrel for the first time since early June and has gained about 16% over the past week, according to CNN. US benchmark West Texas Intermediate (WTI) crude rose 2.8% to $84.04 per barrel.
Around half of US states still have average gas prices below $4 per gallon. Indiana has the lowest average gas price at about $3.35 per gallon. California has the highest average gas price at about $5.49 per gallon. Washington state and Hawaii also have average gas prices above $5 per gallon. Independent oil analyst Tom Kloza said gas prices are unlikely to fall anytime soon, according to CNN.
