US fuel prices to take ‘months’ to normalise after US-Iran deal to end war
Producers will need time to ramp up output, while port bottlenecks and heightened summer demand will keep US prices up. The preliminary deal to end
Producers will need time to ramp up output, while port bottlenecks and heightened summer demand will keep US prices up. The preliminary deal to end US-Israel war on Iran has sent oil prices tumbling to a three-month low amid hopes that the Strait of Hormuz will reopen. But it could be months before American consumers see major relief at the petrol pump. The closure of the strategic chokepoint disrupted global energy markets for more than three months, cutting off a major shipping route through which roughly one-fifth of the world’s oil and liquefied natural gas normally passes. On Sunday, US President Donald Trump said prices would “drop like a rock” once the strait reopens, a claim he has made multiple times in the past few weeks. However, experts caution that a major decline in prices is unlikely to happen as quickly as Trump suggests. While Asian markets rely more heavily on oil shipped through the Strait of Hormuz than North American markets, tighter supply and steady demand have pushed prices higher worldwide. On Monday, petrol prices in the US remained above $4 per gallon (3.78 litres), averaging $4.06 nationwide, according to the American Automobile Association (AAA). This was a dip from a high in early May of $4.48 per gallon. By comparison, prices stood at $2.98 per gallon on February 28, when the US and Israel first struck Iran, triggering a ripple effect across global energy markets. Energy prices have risen sharply in the US in recent months, increasing 7.7 percent over the last two months alone, and are up 40 percent from a year ago, according to last week’s inflation report from the Labor Department’s Bureau of Labor Statistics, However, prices are beginning to fall, a dip that began as Washington and Tehran entered negotiations. “The potential deal that the US and Iran agreed to over the weekend certainly could pave the way for even lower prices… in the next two to three days by what we saw over the weekend,” Patrick De Haan, head of petroleum analysis at GasBuddy, which tracks petrol prices, told Al Jazeera.
But De Haan expects a plateau and says that consumers may not see gas prices at pre-war levels until 2027, even if the ceasefire holds. “It may take many months, if not beyond a year, for global oil inventories to recover to pre-war levels,” De Haan said. Amid strains on the supply chain, producers will also need time to ramp up output, while port bottlenecks and heightened demand during the busy summer travel season could delay any substantial relief for everyday consumers. “There are some mitigating factors that are going to slow the decline in prices. There are a lot of organisations and companies that have to re-up their stockpiles [like the US’s strategic petroleum reserve] and fulfil contracts that have been on hold for the last few months,” John Deal, managing director of capital markets at the Post Oak Group investment bank, said. Supply chain strains Fixing kinks in the supply chain takes time. Oil production slumped amid the war. More than 14 million barrels per day, or 14 percent of the world’s demand, has been shut, according to the International Energy Agency. Deal said it would take time to get oil production back online. “My sense is that there’s going to be sustained high demand through the summertime, and we probably won’t get back to pre-war levels [on petrol prices] until after the summer, maybe September or October,” Deal said. Mark Jones, a professor of political science at Rice University, said that producers might be reluctant to bring full operations back online until they can see the ceasefire hold. The agreement opening the blockade is for a 60-day negotiation period between the two countries. “Many [producers] may be reluctant to restart production until they are convinced that the peace will hold, because the last thing they want to do is carry out the costly effort to restart production only to see the conflict revived and then have to shut it down once again,” Jones told Al Jazeera. Getting production back online is also dependent on the impact individual producers have faced throughout the war. Refineries that were shut as a precaution could reach as much as 95 percent capacity within 40-60 days, Vitol Bahrain’s head of research, Bader Nooruddin, told the Reuters news agency.
The BriefWire