U.S. gasoline prices slip below $4 a gallon as oil eases on Iran deal hopes

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U.S. gasoline prices dip below $4

Highlights

U.S. average retail gasoline price falls below $4 to $3.997 per gallon on Sunday for the first time since mid-April, tracking crude's $4-plus slide on Iran deal hopes.
Crude oil's decline follows a memorandum of understanding between the U.S. and Iran to end a near four-month war and the potential reopening of the Strait of Hormuz after a formal ceremony Friday.
Gasoline inventories drop to 215.1 million barrels, the lowest seasonal level in a decade, as strong demand and exports strain supply despite Americans spending $46 billion more on gasoline since the war began.

Fuel price decline tracks oil market reaction

As reported by Reuters, U.S. average retail gasoline prices dip below $4 a gallon as optimism grows that a preliminary agreement between the U.S. and Iran could reopen the Strait of Hormuz, a key route for global oil supplies.

Crude prices fall more than $4 a barrel on Monday after U.S. President Donald Trump says Washington and Tehran sign a memorandum of understanding to end a near four-month war, although it remains unclear whether the agreement will hold. Trump says the text of the deal is due after a formal signing ceremony on Friday, when he also says the strait will be fully reopened.

GasBuddy data show the U.S. national average retail gasoline price falls to $3.997 a gallon on Sunday, the first drop below $4 since mid-April, although prices are still 90.8 cents higher than a year earlier. The American Automobile Association puts the national average at $4.065 on Monday.

Patrick De Haan, head of petroleum analysis at GasBuddy, says the next test is whether normal oil flows resume through the Strait of Hormuz, which would signal whether the relief in prices can last. He says the national average could continue falling if there is no sharp reversal and if the U.S. and Iran keep moving in a positive direction.

Relief faces supply and geopolitical risks

Breaking below $4 a gallon is widely seen as a psychological threshold, where some consumers begin changing behavior by cutting fuel use. Lower gasoline prices could also ease political pressure on Republicans ahead of November's midterm elections after rising fuel costs trigger backlash.

Still, analysts warn the reprieve may be brief. SEB chief commodities analyst Bjarne Schieldrop says the U.S.-Iran memorandum remains fragile, while Tom Kloza, chief energy advisor at Gulf Oil, says any delay in clearing the strait, restoring vessel insurance and reducing violence by Iranian proxies could limit the benefit.

The gasoline market also faces a potential supply crunch as resilient domestic demand and strong fuel exports threaten already thin inventories. Government data show gasoline stocks in the first week of June fall to 215.1 million barrels, the lowest seasonal level in a decade.

Americans have collectively spent about $46 billion more on gasoline since the start of the war, De Haan says. In May, consumer inflation rises above 4% for the first time in three years, while easing gasoline prices help moderate inflation expectations this month, according to the Labor Department.

In our earlier coverage of the market rally tied to easing U.S.–Iran tensions, we explained how expectations of the Strait of Hormuz reopening pushed crude prices sharply lower and lifted risk appetite across U.S. equities. We also noted that cheaper energy can cool inflation pressures and improve the outlook for consumer- and transport-linked companies, as well as growth stocks that benefit from lower operating costs.

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