Gasoline prices could drop, following drop in crude oil : NPR

Gasoline prices are displayed outside a Shell gas station in West Hollywood, California on April 14. Prices vary across the country and are highest on the West Coast; The national average has risen more than $1 per gallon since the start of the Iran war, but is expected to fall if the decline in crude oil prices continues.

Patrick T. Fallon/AFP via Getty Images

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Patrick T. Fallon/AFP via Getty Images

Oil prices fell sharply on Friday after Iran declared the Strait of Hormuz open to commercial traffic.

Brent futures, the global benchmark for crude oil, fell to around $90 a barrel, down more than $10 from a week ago. U.S. crude is below $85 a barrel after rising above $110 at one point during the conflict.

If these current prices hold, drivers should soon start seeing prices drop at the pump, says Patrick De Haan, chief oil analyst at the app Gasbuddy. He told reporters during a virtual event that the national gasoline average, currently above $4 a gallon, could drop below $4 as early as this weekend and reach $3.65 to $3.85 a gallon “over the next couple of weeks,” he said.

There is usually a slight delay between when crude oil prices fall and when gasoline prices follow; some gas stations have already paid high prices to fill their huge underground tanks and will try to recoup that cost. But wholesale gasoline markets are already showing price declines, he says, just hours after the futures markets. This is unusually fast.

“There is an element of immediate relief,” he says. “And more relief will arrive in a month or two, when things really start to fully get back up and running.”

Prices remain volatile and a full recovery will take time

Overall, oil prices remain higher than before the war, when benchmark prices were around $60. And the risk remains that the conflict in the Middle East will take another turn and that oil prices will rise again.

Even if peace persists, the market disruption cannot be immediately corrected.

Disruption of trade through the Strait of Hormuz, as well as attacks on oil infrastructure in the Middle East, have made crude prices highly volatile and pushed gasoline prices up by an average of $1 per gallon. By Labor Day, De Haan predicts, about half of that price rise could be reversed.

But getting back to gas prices below $3 a gallon on average would take even longer. “For every day we spend on this, it could take a week for a lot of things to happen,” he says. “So, you know, 47 weeks: it could take until the end of the year or early next year to really get back to normal.”

Energy consultancy Rystad Energy estimates that damage to oil and gas facilities in the Middle East could cost up to $50 billion in repairs. Even oil fields and refineries that have not been damaged can take weeks to restart production; they are not designed to turn on and off overnight.

And even after production restarts, crude oil and fuels still have to spend weeks on tankers traveling around the world.

“Reopening the Strait of Hormuz eases near-term pressure on oil markets, but it is not a complete reset,” Angie Gildea, head of oil and gas for accounting giant KPMG, told NPR in an emailed statement. “Damage to gas infrastructure and production delays mean the impact on prices could persist for months, even if the major risks fade.”