A tentative ceasefire in the Middle East has done little to quell the harsh reality for American drivers, with gasoline prices above $4 a gallon expected to persist through the peak summer travel season as crude markets remain on edge.
"There's so much uncertainty still around what this ceasefire means, and when and how fuel starts to flow through the Strait of Hormuz again, retailers are not going to drop prices sharply in the face of those unknowns," said Shon Hiatt, director of the Zage Business of Energy Initiative at the USC Marshall School of Business.
Despite front-month US crude futures falling nearly $20 after the ceasefire announcement, the physical market signaled continued stress. Bids on actual oil cargoes, tracked by Argus Media, reached as high as $145 a barrel, while US crude futures rebounded to nearly $98 a barrel Thursday. The national average for gasoline eased by just a penny to $4.16 a gallon as of Wednesday, according to GasBuddy, still near a four-year high and almost a dollar more than last year's average.
The episode highlights a classic energy market dynamic: retail prices rise like a rocket and fall like a feather. Gas station operators, who face shrinking margins when wholesale costs climb, are often slow to lower prices, preferring to sell through their more expensive inventory first. JP Morgan analysts estimate the cumulative cost could reach $100 billion if prices hold at these levels through year-end, a significant drag on consumer spending and a political headache for the Trump administration.
The core of the problem remains the severely constrained tanker traffic through the Strait of Hormuz, a critical chokepoint for global energy supplies.
"Not a lot has changed since the ceasefire has come in, meaning we’re still seeing severely constrained flows through [the Strait of] Hormuz,” said Daniel Sternoff, a senior fellow at Columbia University’s Center on Global Energy Policy.
Even if the fragile truce holds, the geopolitical risk premium is expected to linger. Insurance costs for tankers will be higher than before the conflict, and shipowners will likely remain hesitant to transit the waterway. Alex Hodes, director of energy market strategy at StoneX, said markets "still will be elevated throughout the rest of the year."
The impact is particularly acute for diesel and jet fuel. The Middle East is a key supplier of these products and the crude grades best suited to produce them.
In California, the epicenter of the price shock, average diesel prices hit $7.75 a gallon on Thursday, according to AAA. Nationally, US average retail diesel prices continued to climb to $5.67 a gallon, the highest since July 2022 and nearly 60% more than a year ago. This surge directly impacts shipping and transportation costs, feeding into broader inflation.
"That spike is a huge hit on someone’s take-home pay, whether they’re a small-business owner or W-2 employee at a company,” said Mark Valentino, head of business banking at Citizens.
This article is for informational purposes only and does not constitute investment advice.
