Oil prices fell sharply on Friday after Iran declared the Strait of Hormuz open to commercial traffic.
Brent futures, the global benchmark for crude oil, dropped to around $90 a barrel, down more than $10 from a week ago. U.S. crude is under $85 a barrel after rising above $110 at one point in the conflict.
If these current prices hold, drivers should soon start to see prices dropping at the pump, says Patrick De Haan, chief petroleum analyst at the app Gasbuddy. He told reporters in a virtual event that the national average for gasoline, currently above $4 a gallon, could drop below $4 as soon as this weekend and reach $3.65 to $3.85 per gallon "in the next week or two," he says.
There's usually a slight delay between when crude prices drop and when gasoline prices follow; individual gas stations have already paid high prices to fill their massive underground tanks, and will try to recoup that cost. But wholesale gasoline markets are already showing price drops, he says, just hours after the futures markets. That's unusually fast.
"There's an element of immediate relief," he says. "And more relief will be coming in a month or two when things really start to get fully back on line."
Prices are still volatile and a full recovery will take time
Overall, oil prices are still higher than what they were before the war, when benchmark prices were around $60. And the risk remains that the conflict in the Middle East could take another turn, and oil prices ramp back up again.
Even if peace holds, the market disruption can't be immediately corrected.
The disruption of trade through the Strait of Hormuz, along with attacks on oil infrastructure in the Middle East, made crude prices highly volatile and pushed gasoline prices up by a dollar per gallon on average. By Labor Day, De Haan predicts, about half of that price hike could be reversed.
But getting back to gasoline prices below $3 a gallon on average would take even longer. "For every day that we've been at this, it may take a week for a lot of this to unwind," he says. "So, you know, 47 weeks: That may take until later this year or early next year to really fully normalize."
The energy consultancy Rystad Energy has estimated that the damage to oil and gas facilities in the Middle East may cost as much as $50 billion to repair. Even oil fields and refineries that haven't been damaged can take weeks to restart production; they're not designed to turn on and off overnight.
And even after production restarts, crude oil and fuels still need to spend weeks on tankers to travel around the world.
"Reopening the Strait of Hormuz eases the near term squeeze on oil markets, but it's not a full reset," Angie Gildea, the head of oil and gas for the accounting giant KPMG, tells NPR in an emailed statement. "Damage to gas infrastructure and delayed production mean the price impact could linger for months, even if headline risks fade."
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