In a statement made on Wednesday, it was noted that despite wholesale fuel prices dropping following U.S. President Donald Trump’s two-week ceasefire in the U.S.-Israel war against Iran, U.S. consumers will continue to pay high prices to fill their vehicles or buy plane tickets during the peak of the summer travel season.
The high fuel prices caused by Iran’s blockade of the Strait of Hormuz have become a significant issue in Trump’s and the Republican Party’s campaign to maintain control of the U.S. Congress in the midterm elections in November.
The war has driven gasoline and diesel prices to their highest levels in years, and economic troubles have brought Trump’s approval ratings to their lowest since he returned to the White House.
After Trump announced a two-week ceasefire agreement on Tuesday, U.S. crude oil futures fell by about 0, and U.S. gasoline and diesel futures also showed a sharp decline; as investors bet on the potential reopening of the Strait of Hormuz.
However, experts noted that the falling crude oil futures are unlikely to bring quick relief to consumers at gas stations, and they pointed out that the fragile ceasefire has already begun to show cracks. After Israel launched its largest attack on Lebanon to date, the Strait of Hormuz remained closed on Wednesday. Iran also attacked a pipeline that Saudi Arabia relies on to bypass the Strait of Hormuz.
Shon Hiatt, director of the Zage Energy Management Initiative at USC Marshall School of Business, said, “There is still a lot of uncertainty about what this truce means and when and how fuel will start flowing again thru the Strait of Hormuz, and retailers are not going to sharply lower prices in the face of that uncertainty.”
Hiatt said that in any case, retail fuel prices rise much faster than they fall because fuel sellers will deplete their higher-priced stocks and seek greater certainty about future supply to avoid losses.
“Prices are skyrocketing like a rocket and plummeting like a feather.” Prices are skyrocketing like a rocket and plummeting like a feather.
According to GasBuddy data, the price of retail gasoline in the U.S. fell by one cent to $4.16 per gallon by Wednesday afternoon; this figure was approximately the highest level in four years at $4.17 on Tuesday.
GasBuddy analyst Patrick De Haan said, “If everything freezes right now, the national average gas price could drop by 5 or 10 cents per gallon by this time next week.”
According to GasBuddy data, as of Tuesday, the price at the gas pumps remained about a dollar higher than the average from last year.
RISK PREMIUM
StoneX’s director of energy market strategy, Alex Hodes, said that regardless of whether the ceasefire is in effect or not, insurance costs will be higher than before the war, and ships will hesitate to cross the waterway.
Hodes said, “Markets will remain at high levels for the rest of the year due to the high geopolitical risk premium.”
Hodes and Hiatt stated that especially the diesel and jet fuel markets will remain tight due to the limited supply of these fuels compared to other refined products.
The Middle East is an important supplier of these fuels and also of the types of crude oil with the highest yield in refineries.
Average retail diesel prices in the U.S. continued to rise on Wednesday despite the ceasefire agreement, reaching $5.67 per gallon; the highest level since July 2022 and about 60% more than last year.
U.S. gasoline futures fell about 9% in intraday trading, while diesel futures dropped over 14%. Both remained about a dollar above pre-war levels. Gasoline futures were trading at $3.01 a gallon, while diesel futures were trading at $3.83 a gallon.
The trading desk of the U.S. fuel distribution company TACenergy wrote, “The remaining risk premium is a reminder that the majority of ships have yet to pass thru the Strait of Hormuz, as ceasefire plans have not yet reached the parties initiating the attacks.”
