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US petrol prices are heading below $4 a gallon following an agreement between Tehran and Washington to reopen the Strait of Hormuz that could ease pressure on Americans squeezed by a cost-of-living crisis.
The national average price of gasoline has fallen more than nine cents over the past week and stands at $3.99 a gallon, according to GasBuddy, which tracks pricing data from gasoline stations.
It has dropped more than 52 cents from a month ago when surging oil prices linked to the Iran war sent inflation to a three-year high and helped push President Donald Trump’s approval ratings near-record lows.
The price of diesel, a vital fuel for industry and farmers, has also fallen sharply as traders bet flows of oil and other petroleum products will resume following the deal to reopen the strait, a waterway through which a fifth of global oil typically flows.
The national average price of diesel fell by almost 12 cents to $5.18 per gallon over the past week.
The White House welcomed the fall. “President Trump was clear all along that there would be short-term, temporary disruptions to energy markets, and that oil and gas prices will quickly fall as soon as the Iran situation is resolved,” said spokesperson Taylor Rogers.
Analysts said US petrol and diesel prices should continue to decline as long as the agreement struck between the US and Iran holds. The deal is expected to be formally signed in Switzerland on Friday.
“The real test now shifts to the Strait of Hormuz, where any reopening and resumption of normal oil flows would be the clearest signal that this relief is durable,” said Patrick De Haan, head of petroleum analysis at GasBuddy.
Oil prices have now fallen by about 30 per cent since peaking at $119.50 on March 9 at the height of the conflict. Brent crude, the international benchmark, was down 5 per cent in afternoon trading on Monday in New York at $83.13. The announcement of a deal came on Sunday evening.
But analysts sounded a note of caution that markets would take time to normalise and warned there was no guarantee that a proposed final agreement between Iran and the US could be negotiated.
Huge drawdowns of commercial and strategic stockpiles also mean the market lacks the buffers to absorb shocks in the months ahead. The US Strategic Petroleum Reserve has fallen to its lowest level since 1983, according to the US Energy Information Administration.
“Even if Hormuz tanker traffic resumes shortly, the risk of a summer or fall oil price spike has not completely disappeared,” said Bob McNally, president of Rapidan Energy and a former energy adviser to the George W Bush White House.
“The global oil market must still reckon with a historic 1.5bn barrel supply loss . . . it will take many weeks and months for restarted Hormuz oil exports to rebalance the global oil market.”
Francis Osborne, head of oil analytics at price reporting agency Argus, said vessel owners, operators and insurers would be cautious about immediately returning to the Hormuz waterway, preferring to await other vessels’ successful transits over a sustained period before recommitting to the route. The existing backlog of ships in the waterway could also take weeks to clear.
“Logistically, displaced vessel tonnage and crews will need to be repositioned, which will take time to achieve, while regional commodity production and export capacity in the Middle East Gulf is likely to take months rather than weeks to be restored.”
A senior White House official acknowledged that it would take “a little bit of time” for flows to return to normal, but said traffic through the strait should begin to escalate immediately.
“We’ve been getting as much as 25 ships through a day . . . that will probably go to 45 to 50 very quickly,” they said, adding that tankers carrying oil and gas would be given priority.
About 130 ships passed through the waterway daily before the war began.
The surge in fuel prices in recent months has ripped across the US economy as higher transportation costs fed through to everything from airfares to groceries. Consumer inflation rose from 2.4 per cent in February to 4.2 per cent in May, its highest level since April 2023.
The fall in prices comes as Kevin Warsh has taken over as chair of the Federal Reserve and faces divergent views on the central bank’s rate-setting committee as to how policymakers should adjust interest rates in response.
The Fed is expected to hold rates steady when it meets this week but analysts widely expect it will drop language indicating a bias towards easing them. Some policymakers have argued borrowing costs might have to be increased before the end of the year to combat the rise in inflation.
