Strait of Hormuz closure + depleted inventory + peak travel season: a triple whammy for oil prices this summer.
2026-05-21 10:16:07
American drivers are currently facing the highest gasoline prices since 2022, and fuel costs are expected to rise further as the busy summer travel season heats up. The latest forecast from GasBuddy, a tracking service, shows that the average price of gasoline across the country will reach $4.80 per gallon from Memorial Day weekend to Labor Day.
According to data from the American Automobile Association, the average price of regular gasoline across the United States was $4.56 per gallon on Wednesday, up more than $1.40 from last year and more than 50% since the US-Israeli attacks on Iran in late February. GasBuddy oil expert Patrick DeHaan said, "This is the most volatile summer for gas station prices in years."
De Haan warned that if the Strait of Hormuz—a crucial Middle Eastern waterway that typically carries one-fifth of the world's oil supplies—remains closed into the late summer, gasoline prices could test a record high of $5.02 per gallon. Shipping through the strait has been largely halted due to the war with Iran, which is now in its 12th week and has driven up global oil prices.
DeHaan stated, "Americans will spend billions of dollars more to reach their destinations this summer. Even if the strait reopens, prices could take a year or more to fully recover."
The Middle East conflict is just one factor driving up gasoline prices. Fuel costs typically rise in the summer as U.S. environmental regulations require gas stations to switch to more expensive gasoline blends. GasBuddy says this higher-grade fuel, designed to prevent evaporation when temperatures rise, can increase the cost by up to 15 cents per fill-up. Additionally, increased gasoline demand as more Americans drive during the summer could also push prices up by 5 to 15 cents per gallon.
According to a recent CBS News poll, more than half of Americans say gasoline prices are causing financial hardship, while 77% say their income is not keeping pace with rising inflation.
A recent report from Morgan Stanley indicates that U.S. gasoline inventories may fall to a record low for this time of year by late summer. Under the baseline scenario, inventories are projected to drop to approximately 198 million barrels, the lowest level for this period since modern records began, even lower than the lows during the 2022 energy crisis.
The report points out that the main reasons for the sharp drop in inventories include: first, a "collapse" in East Coast imports, with May arrivals from Europe expected to be far below the usual 3-4 million barrels; second, refineries continue to favor the production of distillate fuels (diesel and jet fuel) due to their higher profit margins, thus reducing gasoline production; and third, continued demand from Latin America (especially Mexico) and other regions continues to deplete US inventories, putting additional pressure on the market.
Morgan Stanley points out that the gasoline crack spread rose to nearly $35 per barrel in July, close to the bank's theoretical value of $40 per barrel corresponding to its inventory forecast, indicating that prices have largely reflected the current tight supply situation. Looking ahead, if geopolitical risks in the Strait of Hormuz persist, it could push the spread up by another $10-15 per barrel, returning to 2022 levels.
The impact of high oil prices is not only reflected in existing inflation data, but also profoundly affects market expectations for future price trends. The New York Fed's April consumer expectations survey showed that the median inflation expectation for the next year has risen to 3.6%, up from 3.4% in March. More worryingly, the University of Michigan's May consumer confidence index further declined to 48.2, hitting a record low for the second consecutive month, with about one-third of respondents citing gasoline prices as a major concern.
Brian Jacobson, chief economist at Annex Wealth Management, warned that the energy shock is currently more evident in corporate profit margins and has not yet fully translated into consumer prices; however, if high oil prices persist longer, inflationary pressures will spread further to the consumer side. This means that the current gasoline price of $4.56 may only be a "prelude" to a wider range of inflationary pressures.
In conclusion, US gasoline prices are at multi-year highs with limited downside potential in the short term. The closure of the Strait of Hormuz due to geopolitical conflict is the core factor driving up oil prices, coupled with seasonal cost increases from the summer transition to environmentally friendly fuels and increased demand from peak travel seasons, creating a triple pressure on oil prices this summer. Even if the strait reopens, a full price recovery could take more than a year. For US consumers, energy costs have become a significant strain on household budgets and are likely to have a broader impact on overall consumer spending and inflation expectations.
Current price and all-time high: $4.56 per gallon, just shy of the record of $5.02.
According to data from the American Automobile Association, the average price of regular gasoline across the United States was $4.56 per gallon on Wednesday, up more than $1.40 from last year and more than 50% since the US-Israeli attacks on Iran in late February. GasBuddy oil expert Patrick DeHaan said, "This is the most volatile summer for gas station prices in years."
De Haan warned that if the Strait of Hormuz—a crucial Middle Eastern waterway that typically carries one-fifth of the world's oil supplies—remains closed into the late summer, gasoline prices could test a record high of $5.02 per gallon. Shipping through the strait has been largely halted due to the war with Iran, which is now in its 12th week and has driven up global oil prices.
Three major drivers of rising oil prices: geopolitical conflicts, environmental regulations, and seasonal demand.
DeHaan stated, "Americans will spend billions of dollars more to reach their destinations this summer. Even if the strait reopens, prices could take a year or more to fully recover."
The Middle East conflict is just one factor driving up gasoline prices. Fuel costs typically rise in the summer as U.S. environmental regulations require gas stations to switch to more expensive gasoline blends. GasBuddy says this higher-grade fuel, designed to prevent evaporation when temperatures rise, can increase the cost by up to 15 cents per fill-up. Additionally, increased gasoline demand as more Americans drive during the summer could also push prices up by 5 to 15 cents per gallon.
Impact on the public: Most Americans view oil prices as a financial burden.
According to a recent CBS News poll, more than half of Americans say gasoline prices are causing financial hardship, while 77% say their income is not keeping pace with rising inflation.
Inventory Crisis: Morgan Stanley Warns Gasoline Inventories May Hit Record Low for This Time of Year
A recent report from Morgan Stanley indicates that U.S. gasoline inventories may fall to a record low for this time of year by late summer. Under the baseline scenario, inventories are projected to drop to approximately 198 million barrels, the lowest level for this period since modern records began, even lower than the lows during the 2022 energy crisis.
The report points out that the main reasons for the sharp drop in inventories include: first, a "collapse" in East Coast imports, with May arrivals from Europe expected to be far below the usual 3-4 million barrels; second, refineries continue to favor the production of distillate fuels (diesel and jet fuel) due to their higher profit margins, thus reducing gasoline production; and third, continued demand from Latin America (especially Mexico) and other regions continues to deplete US inventories, putting additional pressure on the market.
Morgan Stanley points out that the gasoline crack spread rose to nearly $35 per barrel in July, close to the bank's theoretical value of $40 per barrel corresponding to its inventory forecast, indicating that prices have largely reflected the current tight supply situation. Looking ahead, if geopolitical risks in the Strait of Hormuz persist, it could push the spread up by another $10-15 per barrel, returning to 2022 levels.
Risk of inflation expectations decoupling: Consumers expect prices to rise another 3.6% over the next year.
The impact of high oil prices is not only reflected in existing inflation data, but also profoundly affects market expectations for future price trends. The New York Fed's April consumer expectations survey showed that the median inflation expectation for the next year has risen to 3.6%, up from 3.4% in March. More worryingly, the University of Michigan's May consumer confidence index further declined to 48.2, hitting a record low for the second consecutive month, with about one-third of respondents citing gasoline prices as a major concern.
Brian Jacobson, chief economist at Annex Wealth Management, warned that the energy shock is currently more evident in corporate profit margins and has not yet fully translated into consumer prices; however, if high oil prices persist longer, inflationary pressures will spread further to the consumer side. This means that the current gasoline price of $4.56 may only be a "prelude" to a wider range of inflationary pressures.
Multiple factors combined make it difficult for oil prices to ease this summer.
In conclusion, US gasoline prices are at multi-year highs with limited downside potential in the short term. The closure of the Strait of Hormuz due to geopolitical conflict is the core factor driving up oil prices, coupled with seasonal cost increases from the summer transition to environmentally friendly fuels and increased demand from peak travel seasons, creating a triple pressure on oil prices this summer. Even if the strait reopens, a full price recovery could take more than a year. For US consumers, energy costs have become a significant strain on household budgets and are likely to have a broader impact on overall consumer spending and inflation expectations.
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