Memorial Day gas prices hit highest level in years and could keep climbing

WASHINGTON (TNND) — Gas prices have climbed across the U.S. with negotiations to reopen the Strait of Hormuz in a deadlock, pushing the average price of a gallon of fuel over $4 in all 50 states, according to AAA.

As Americans are preparing to hit the road for Memorial Day weekend in anticipated record numbers, they will be hit with prices at their highest level since the summer of 2022, when Russia’s invasion of Ukraine disrupted global energy markets. The national average for a gallon of regular gasoline sat at $4.55 as of Friday, $1.36 higher than this time last year.

Those costs are expected to stay high throughout the summer with limited progress in resolving the war with Iran and restoring traffic through the Strait of Hormuz, a crucial chokepoint where 20% of the world’s oil and gas supply pass through. Iran and the U.S. signaled progress on talks to end the war on Thursday, but analysts warn it will still take months for prices to normalize even if the strait were to reopen.

The national average for gas could soon hit $5 a gallon if the strait is not reopened and prices will not return to below $3 for up to a year, according to an analysis by GasBuddy.

“This is the most volatile summer at the pump in years, and the Strait of Hormuz closure is at the center of it,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “Americans are going to pay billions more to get where they’re going this summer, and even after the Strait reopens, it could take a year or more for prices to fully recover.”

Fuel costs also tend to rise during the summer because gas stations switch to a different blend in warmer months and more people hit the road for summer travel, pushing up demand.

Analysts warn sustained oil prices above $100 a barrel could lead to higher airline fares, shipping costs and food prices as transportation expenses work deeper into the economy.

The International Energy Agency warned this week the oil market could hit a “red zone” this summer if the strait does not reopen to traffic as global oil stockpiles become depleted. A report earlier this week warned global oil inventories are being drawn down at a record pace.

IEA chief Faith Birol told reporters on Thursday that continued releases from reserves had added 2.5 million barrels of oil per day to the market but warned those stockpiles “are not endless” and could soon come under greater stress as demand for diesel, fertilizer and jet fuel increase.

In the U.S., commercial and emergency oil inventories have dipped significantly as the industry tries to fill gaps being left by the supply shocks from the Middle East. The level of oil in the U.S. Strategic Petroleum Reserve has dropped 10% since the start of the war, the lowest level in two years.

A pullback on releases from reserves is likely to exacerbate pressure on energy prices that could skyrocket if disruptions continue through the summer.

“If everything stays the way it is, as in no progress on the strait, and the releases from the from the strategic reserves stop, then we could see the price get to $196 a barrel,” said Ed Hirs, an energy fellow at the University of Houston. “We’re kind of getting to the point when the releases play out, then we’re going to see normal market fundamentals kick in.”

Brent crude, the international benchmark, has been trading above $100 a barrel for weeks. West Texas Intermediate, was $100 a barrel as of Thursday afternoon but retreated some after reports of progress in ending the war. Higher oil prices push up the costs for refined products like gasoline and jet fuel that can seep into other parts of the economy as transportation becomes more expensive.

Oil futures markets are also signaling elevated prices could continue for months, another indicator higher prices are here to stay over the coming months.

“What we see trading on WTI today will be reflected at the pump when it’s gasoline, and today’s trades for July delivery will be the gasoline in your tank by Labor Day,” Hirs said.

The White House has made a series of moves to contain gas prices over the course of the conflict, releasing record volumes of oil from the strategic reserve, suspending the federal gas tax, waiving the Jones Act and pausing sanctions on Russian oil. But the White House has limited ability to tamp down prices on a commodity traded in a global marketplace.

Trump said on Thursday that higher gas prices were “peanuts” compared to Iran getting a nuclear weapon and said prices will come down soon.

“You want to see the world exploded? You want to see a problem? This is peanuts.” Trump told reporters. “I appreciate everybody putting up with it for a little while. It won’t be much longer.”