It’s going to be an expensive summer at the pump unless oil starts flowing through the Strait of Hormuz soon.
“We are set up for a summer of pretty high prices,” CIBC Private Wealth senior energy trader Rebecca Babin told Yahoo Finance on Wednesday.
She added, “I think we could tip up to $4.75 throughout the course of the summer driving season. If flows don’t resume, we are 100% going to $5.”
The national US average eased to $4.46 per gallon on Wednesday, down roughly $0.10 from a week ago, according to AAA data, as oil prices have tumbled.
Oil prices (CL=F, BZ=F) have dropped about 13% over the past week as investors increasingly price in a lasting peace deal between the US and Iran that would include the reopening of the Strait of Hormuz, a critical global oil shipping route that has been heavily disrupted since the war began.
Even so, critically low inventories continue to pose risks for oil and refined fuel supplies. Analysts warn that restoring production and rerouting logistics will take time, meaning fuel markets are likely to remain tight in the near term.
“During the course of this month, even if things were to really crystallize on this deal, we are going to continue to see a very tight market, particularly in gasoline, jet fuel, diesel, as well as in crude,” Babin said.
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Gasoline prices recently reached their highest level since the summer of 2022, about 40% higher than a year ago. More expensive summer fuel blends and increased seasonal driving demand have also pushed prices higher.
Even if flows are restored and Middle Eastern producers ramp up output, analysts say it could take until September or October for prices to see a meaningful decline.
”It’s going to be very difficult, I think, for prices to revert back down to that kind of sub-$4 level until we get real normalization of flows and we come out of this seasonally strong period,” Babin said.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
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