Will the US-Iran ceasefire bring down gas prices?
Oil prices plummeted on Wednesday in the hours after the U.S. and Iran announced a two-week ceasefire, stirring hope of relief from soaring gasoline prices.
Drivers may not have to wait long. Gas prices could start to drop within days as retailers factor in falling oil prices, some analysts told ABC News, but it could take weeks or months to reverse a significant share of the cost increases triggered by the Middle East conflict.
The outlook remains fraught with uncertainty, they added, since sustained price reductions will depend on the durability of the ceasefire and the resumption of tanker traffic through the Strait of Hormuz, a vital oil-shipping route.
“Gasoline prices will come down, but I think we’re in for a bumpy ride,” Ramanan Krishnamoorti, a professor of petroleum engineering at the University of Houston, told ABC News.
Typically, scores of ships carry a fifth of the world's oil through the Strait of Hormuz each day, but Iran effectively closed the passage over the course of the war. That oil shortage sent gasoline prices surging worldwide, including in the U.S.
Gasoline prices in the U.S. on Wednesday ticked up to $4.16 on average per gallon, marking a leap of $1.18 since the start of the war, AAA data showed.
As part of the ceasefire, Iran says it will allow tankers passage through the Strait of Hormuz as long as they coordinate with the nation's military.
The resumption of tanker traffic remains uncertain. Tanker traffic was suspended on Wednesday after Israeli attacks on Lebanon, Iran's semi-official Fars News Agency reported.
But if the agreement holds, investors appeared optimistic that it would ease one of the worst global oil shortages in decades.
U.S. oil prices plunged 15% on Wednesday, registering at about $95.50 a barrel. Still, the price remained well above pre-war levels of about $67 a barrel.
“Oil markets have exhaled in relief at the absence of further escalation,” Timothy Fitzgerald, a professor of business economics at the University of Tennessee who studies the petroleum industry, told ABC News.
Crude oil is the main ingredient in auto fuel, accounting for more than half of the price paid at the pump, according to the federal U.S. Energy Information Administration.
The recent decline in oil prices will be passed through the supply chain and make its way to consumers in the form of lower prices, some analysts said, forecasting relief at the pump as soon as this week.
“Gas prices could start reversing nationally in 48 hours or so - by a few cents every day,” Patrick De Haan, a petroleum analyst at GasBuddy, said in a X post on Tuesday night. The national average price of a gallon of gas could fall below $4 within one or two weeks, De Haan added.
On Wednesday, De Haan reiterated his forecast in another post on X, imploring drivers: “WAIT TO FILL!”
A more substantial drop in prices could take weeks or months, however, some analysts said.
Gas prices usually fall at a slower pace than they rise, since retailers prefer to keep prices elevated as they sell through inventory acquired at high cost, Krishnamoorti said.
Plus, gas prices typically rise in spring, when warm-weather travelers drive up demand and refineries switch to a more expensive blend of summer fuel. Those seasonal effects could undercut some of the savings from lower oil prices.
Analysts differed on the pace and extent of price savings. Krishnamoorti said the national average price of a gallon of gas could fall to $3.60 in the coming months, which would amount to a decline of about 56 cents from current levels. Fitzgerald forecasted a drop of 50 cents as soon as the end of April.
“I would expect that drop in a matter of weeks, not days,” Fitzgerald said.
To be sure, the outlook remains murky as questions surround the staying power of the ceasefire and the reopening of the strait, some analysts said.
“Conditions concerning the war in the Middle East seem to be changing extremely rapidly,” Steve Allen, an economist at North Carolina State University, told ABC News. “There is so much uncertainty that I still find it hard to believe the people in the gasoline supply chain are whistling happy days are here again.”
Gas prices will drop if oil costs stay at reduced levels, but a renewal of the conflict could push gas prices back toward where they stood prior to the ceasefire, Allen said.
“This war could be worse in a week or two,” Allen added.
Even if the ceasefire holds, gas prices are unlikely to fall to pre-war levels anytime soon, some analysts said. Damaged energy infrastructure in the Gulf will require an extended period of repairs. Lingering geopolitical tensions and a potential toll system in the strait could add new costs.
“Gasoline purchasers in the U.S. should have an expectation that gasoline prices at the pump will be elevated going forward relative to where they were before all this started,” Fitzgerald said.
