Key Takeaways
Soaring gasoline prices are squeezing American households ahead of the Memorial Day weekend, as the ongoing war with Iran throttles global oil supply and pushes U.S. pump prices to their highest level in nearly four years.
"This is the most volatile summer at the pump in years, and the Strait of Hormuz closure is at the center of it," said Patrick De Haan, head of petroleum analysis at GasBuddy. He added that Americans are going to pay billions more to get where they’re going this summer, and it could take a year or more for prices to fully recover even after the strait reopens.
U.S. average retail gasoline prices have jumped by about $1.50 a gallon, or 45 percent, since late February when the conflict began, according to data from the American Automobile Association. The surge follows a spike in crude oil benchmarks after the effective closure of the Strait of Hormuz, a critical chokepoint through which roughly 20 percent of the world’s oil consumption flows. Brent crude, the global benchmark, was trading at $105.63 a barrel Friday, while West Texas Intermediate crude stood at $98.97.
The sustained high prices are a political challenge for President Donald Trump, with consumer inflation reaching a three-year high. Several states have moved to suspend gasoline taxes to alleviate the burden on consumers, and a reduction of the 18.4-cent federal gasoline tax is under discussion.
Despite the high prices, a record 39.1 million people are expected to travel by car over the holiday weekend, kicking off the peak summer driving season. However, the financial strain is altering travel behavior. A GasBuddy survey shows that only 56 percent of Americans plan to drive more than two hours this summer, down from 69 percent last year, with 36 percent taking fewer road trips.
The demand comes as U.S. gasoline inventories are dwindling. Stockpiles have fallen for 14 consecutive weeks and are approaching an 11-year low, according to Bob Yawger, director of energy futures at Mizuho. "We are in big trouble as far as gasoline is concerned," he said. The Energy Information Administration reported that U.S. gasoline inventories fell by 1.5 million barrels last week to 214.2 million barrels.
"We have to be very concerned that globally we’re drawing inventories at a terrific pace, and global demand is finding its way here not just for crude, but for refined products," said John Kilduff, a partner at Again Capital. Analysts at Barclays noted that inventory trends signal a deficit of 6-8 million barrels per day, with U.S. inventories near their lowest levels since 2020. If the Strait of Hormuz remains restricted, GasBuddy forecasts that the national average price could cross the $5 per gallon mark this summer.
This article is for informational purposes only and does not constitute investment advice.
