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Drivers hitting the road for Memorial Day weekend are in for some of the costliest fill-ups they have ever seen. The national average price of regular unleaded stood at $4.56 per gallon shortly before many Americans take to their cars for the unofficial start to the summer travel season. Odds are, the average price will hover around the $4.50 mark through the long weekend. That’s not far off the all-time record of $5.02 set in June of 2022. Diesel, meanwhile, is also near a record high, currently averaging $5.66 per gallon. That will add to the cost of the countless goods delivered to store shelves by truck.
The continued interruption of oil exports from the Persian Gulf is the main reason for the high prices at the pump. Benchmark West Texas Intermediate crude oil recently traded near $100 per barrel due to the sharp drop in supplies from the Middle East. Prior to the U.S.-Israeli air strikes on Iran that began on February 28, WTI was trading near $65. Now, markets keep waiting for news of a peace deal to enable oil tankers to resume free movement through the Persian Gulf. Talk of such a deal has picked up this week, but it is not clear if Iran will agree to U.S. demands to surrender its enriched uranium to ensure that it can’t produce a nuclear weapon.
Even if peace does break out in the region, it will take months for oil exports to return to something close to normal, due to damage to energy infrastructure in the Persian Gulf. But prices at the gas station will start to tick down whenever that recovery process can get underway.
Meanwhile, natural gas prices remain subdued. Unlike crude oil, U.S. natural gas prices aren’t generally influenced by events in the Middle East. The U.S. is the world’s largest gas producer and has only limited ability to export its vast gas production. That makes it relatively insulated from geopolitical shocks like the conflict with Iran. Benchmark gas futures prices recently traded near $3 per million British thermal units. We expect futures to stay around $3 until summer heat arrives, when demand for electricity to keep air conditioners humming could give gas prices a lift. Natural gas is the top fuel for generating power in the U.S.
