Gas prices won’t drop anytime soon despite Strait of Hormuz reopening, EIA says

Ships will soon be sailing through the Strait of Hormuz again, and drivers across the country are all wondering when gas prices may return to where they were before the conflict with Iran began. 

Unfortunately, one recent report from the federal government indicates the wait could be longer than many people may have anticipated. In fact, prices may not fall back to pre-war levels before the end of next year.

What they're saying:

The Strait of Hormuz is expected to reopen now that the U.S. and Iran have agreed to a peace deal. When confirming the agreement, President Donald Trump noted that commercial vessels would soon be able to navigate the vital waterway once again, adding, "Ships of the World, start your engines. Let the oil flow!"

Big picture view:

Earlier this month, the U.S. Energy Information Administration (EIA) released a short-term outlook based on the assumption that the Strait would open sometime in the third quarter. It predicted a very slow climbdown from the current price levels, and any significant relief may not be felt for months.

While its predictions were based on the Strait opening sometime between July and September, a previous report by the same agency that had ships passing through sooner painted a similar picture. Last month’s projections were based on an opening toward the end of May, and the EIA’s estimates were very similar, with each of them changing by less than a percentage point.

Related: Is cheap gas bad for your car?

By the numbers:

EIA analysts expect a very slow climbdown from current levels. Between the second and third quarters of this year, they expect average gas prices to slip only 7 cents. Fortunately, as the mercury drops, so will gas prices, and the fourth-quarter average will finally fall back under the $4 mark, to $3.83 per gallon.

After initially falling further at the beginning of 2027, gas prices will rise again as spring arrives before another late-year decline. When all is said and done, the final three months of next year will see a gallon of gas costing an average of $3.41 per gallon, which is still a quarter more per gallon than where it started this year.

Dig deeper:

One optimistic sign that gas prices will sit under the EIA’s predictions could be that AAA’s average gas price in the U.S. has fallen significantly since May 24, when it sat at $4.56 per gallon. 

After three weeks of declines, the average reported by the auto club on Thursday was 44 cents lower at $4.12 per gallon. Were that price to continue at that level, or even drop, it would be lower than the EIA estimates for the next two quarters.

The backstory:

At least 6,000 ships have been unable to pass through the strait since hostilities began between the U.S. and Iran, British Armed Forces Minister Al Carns estimated late last month while discussing efforts to remove mines that may have been placed in the water. 

 

EconomyIran War