Will Gas Hit $5 a Gallon Soon? Prices Rise Due to Iran War
U.S. gasoline prices rose 61.8 cents last month, the biggest spike since the Iran war rattled oil and gas markets around the world.
The state average has already crossed the $5 barrier in California, where drivers now pay $5.29 per gallon — about 80 cents more than last month, according to AAA data. It raises the question: Can the national average again exceed 5 dollars, as it happened briefly in June 2022 in the first phase of the war between Russia and Ukraine?
About 20% of the world’s oil supply has been disrupted in the Strait of Hormuz, according to Rapidan Energy Group, and the price of crude oil, which makes up about 47% of what motorists pay for gas in the US, has increased by about 32% in a month.
“Unrealistic price increases make it difficult to change names,” said Tom Kloza, an independent oil analyst, in a written comment.
After hitting a high of $110 on Monday, oil prices fell later as President Donald Trump told CBS News that the war is “pretty much over.” Brent crude – the global oil benchmark – was trading around $91 per barrel as of press time on Tuesday morning.
“Consumers have seen gasoline prices rise at a faster rate in recent years after oil prices rose following US strikes on Iran,” said Patrick De Haan, head of petroleum research at GasBuddy, in a blog post Monday.
Gas prices rise: Will the national average reach $5?
The national average is expected to jump this week given the recent increase in oil above the $100 per barrel mark for the first time in four years.
“Staying at the current numbers would mean we would see the national average reach $4/gallon,” Kloza wrote. “This could happen in the next 72 hours.”
Other western states like Washington ($4.69) and Hawaii ($4.59) could follow to join the $5 club. As of Tuesday morning, the only states with gas above $4 were Nevada ($4.30) and Oregon ($4.26), according to AAA.
The national average is $3.54 per gallon, up from $2.92 last month. GasBuddy reported that prices in “many states” could jump 20 to 50 cents this week.
“With further attacks in the Middle East over the weekend pushing oil above $100 per barrel for the first time in years, oil markets are now returning to critical risk of a prolonged disruption to global supply flows,” De Haan said.
There is still a ton of room for the national average to work before the $5 per gallon cap is at risk. As a general rule, the price of gas increases by 25 cents for every $10 change in the price of oil.
So at this point, $4 gas seems within the realm of possibility. But $5 gas in the midst of this war will not be ruled out entirely, given the volatility that comes with missiles and drones launched into the world’s largest oil producer.
“We have collected at $100-$120 per barrel of oil despite the fact that most analysts believe that the Strait will be open for business this month,” Kloza wrote. A “worst-case scenario” in which Iran attacks ships passing through the strait could push prices into the “$125 to $160 barrel range,” he added, which could put fuel prices closer to $5, if they continue.
South Korea recently introduced a ‘gas price’. Can the US follow?
On Monday, South Korean President Lee Jae Myung announced that the government is reducing fuel prices, a move that South Korea has not made in nearly three decades. He said the country would “immediately introduce and boldly implement” a system with higher gas and diesel prices.
More details are expected later this week.
In the 1970s, the US enacted price controls on gasoline, which were proposed in 1981 by President Ronald Reagan. That was 45 years ago, and gas price regulation hasn’t been seriously floated in the US recently.
Trump is reportedly reviewing a set of options to try to keep oil prices under control, according to a Reuters article that mentions discussions about a possible release of oil from strategic reserves. Relief could also come in the form of lighter fines for oil-producing countries like Russia or the government waiving certain corporate taxes.
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