Analysts warn that the average retail price of gasoline in the United States is set to break above $3 a gallon for the first time in more than three months. This anticipated increase comes as a conflict between the United States and a major oil producer disrupts global oil flows.
Average pump prices could surpass the $3 mark as early as Monday, according to an analyst at a retail price tracking firm. Prices last exceeded this level nationwide in November of last year, after having dropped to as low as $2.85 a gallon in February.
“Oil will move first. Gasoline will follow—but gradually,” the analyst noted in a statement following recent military strikes.
The nation targeted in the strikes is one of the world’s top oil suppliers, and its government has reportedly closed navigation through the Strait of Hormuz, a critical chokepoint in the Middle East. Approximately one-fifth of the world’s oil travels through this strait by tanker. Following the escalation, at least three tankers have been damaged in the region, and major shipping companies have stated they will avoid the area.
In response to the events, global benchmark Brent crude oil jumped 10% to about $80 a barrel. Some analysts are now predicting the price could reach $100 as the situation intensifies.
Energy consultants suggest that the White House appears willing to accept the political risks associated with higher oil prices to pursue its foreign policy objectives. “Their eyes are wide open to the risk,” one consultant said, adding that the administration will likely focus on shortening the disruption to energy flows. The administration could also signal a willingness to release oil from the U.S. Strategic Petroleum Reserve to prevent prices from climbing too high.
Gasoline prices were already ticking upward prior to the recent events. Refiners had recently begun producing a costlier, summer-grade fuel mandated by environmental regulations to reduce air pollution in warmer weather. Demand for gasoline also typically peaks during the summer vacation season.
“We were all set to rise to $3.10-$3.25 a gallon with a peaceful situation. We’ll now get there very quickly, and the action of the last 48 hours puts higher numbers in play,” said a senior adviser for a fuel supplier. He explained that a $5 per barrel increase for crude should result in an increase of about 12 cents per gallon for gasoline, but some suppliers had already pushed wholesale prices up by as much as 25 cents.
The rising prices represent a reversal after months of declines driven by high inventory levels and slow demand growth. These significant stockpiles could provide a buffer against global market disruptions and help temper the current price spikes. According to the latest government data, U.S. gasoline stocks are near their highest level in years, representing about 30 days of supply.
Despite the immediate volatility, one analyst predicted that markets would likely start to settle after the initial reaction. “I expect a lot of volatility tonight, but markets will likely start to settle down a bit after the first furious hour,” he said.
