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Gas prices are sitting at a four-year low as the ceasefire between Iran and Israel has eased fears that conflict in the Middle East could disrupt global oil supplies.
The national average price for a gallon of regular gasoline was $3.20 on Friday as oil prices remained where they were before tensions in the Middle East caused a “knee-jerk” reaction in the markets, according to industry experts.
U.S. strikes on three key Iranian nuclear sites on Saturday caused petroleum futures to spike Sunday evening, with oil climbing to $78 a barrel. That quickly dissipated by Monday, according to AAA.
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Since there was no disruption to oil supply, oil prices are expected to remain under pressure due to abundant supply, especially as OPEC+ continues to increase production, according to Lipow Oil Associates President Andy Lipow.
World oil demand growth also remains lackluster, according to Lipow, who estimated that prices at the pump will remain relatively stable through the July 4 holiday, shedding 3 to 5 cents over the next week.
The national average price for a gallon of regular gasoline was $3.20 on Friday. (Daniel Acker/Bloomberg via Getty Images / Getty Images)
However, he projected that California prices will inch up as the state excise tax on gasoline increases from 59.6 to 61.2 cents per gallon on July 1.
The market believes the risk of closure of the key waterway, the Strait of Hormuz, “has dropped dramatically,” especially when President Donald Trump said China could buy Iranian oil, lowering the risk of attacks on oil facilities in the region. Iran threatened to close the strait to shipping traffic after the U.S. strikes on Iranian nuclear facilities.
The strait connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. The waterway handles the world’s largest crude oil tankers and is considered one of the world’s most important oil chokepoints, according to the Energy Information Administration (EIA).
A gas pump is filling up a vehicle at a Chevron gas station on December 05, 2022 in Houston, Texas. (Brandon Bell/Getty Images / Getty Images)
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In 2024, 20 million barrels of oil per day, about 20% of global petroleum liquids consumption, flowed through the waterway. There are also very few alternative options to move oil out of the strait if it is closed, according to the EIA.
If oil exports through the strait were affected, Lipow estimated that oil prices could easily hit $100 a barrel, which would raise gasoline prices by about 75 cents per gallon from recent levels. There were also predictions that oil could rise to between $120 and $130 per barrel. If so, gasoline prices would rise by $1.25 per gallon.
Prices at a Mobil gas station in Los Angeles, California, US, on Tuesday, April 2, 2024. (Eric Thayer/Bloomberg via Getty Images / Getty Images)
Meanwhile, Phil Flynn, energy market analyst and FOX Business contributor, credited the neutralization of Iran’s nuclear program for removing a significant amount of geopolitical risk from oil prices, noting that this “has shown up in the gas prices.”
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Flynn also stated that the administration has created a more production-friendly environment, with Trump signaling to the market a shift toward more favorable regulations. He pointed to more realistic plans for oil production and the potential acceleration of refinery permitting, which he said could result in significant long-term savings on gasoline prices.
“This is going to be a big win for consumers as inflation continues to come down,” he added.
