- AAA put the national average for regular gasoline at $3.9788 per gallon on today (10).
- Falling crude prices, weaker seasonal demand and cheaper winter-blend fuel have contributed to the decline.
- Diesel remains around $6.16 per gallon, while geopolitical uncertainty could reverse some of the recent relief.
US gasoline prices have fallen below $4 per gallon for the first time since July, offering some relief to motorists after months of rising fuel costs driven by the Iran war and disruption to global energy supplies.
The national average for regular gasoline stood at $3.9788 per gallon on Tuesday (10), according to the American Automobile Association (AAA). It was the first time in 114 days that the average had dropped below the $4 mark.
Prices have fallen by around 17 cents in a week and nearly 39 cents over the past month. However, they remain almost 91 cents higher than a year ago, when the national average was about $3.07 per gallon.
The decline follows a sharp retreat in crude oil prices. Brent, the global benchmark, fell 5.85 per cent on Monday and slipped below $90 per barrel during Tuesday's trading session for the first time since August 31.
The easing of concerns over a possible escalation of the Iran conflict has contributed to the market downturn. US President Donald Trump has repeatedly played down the prospect of renewed military strikes, raising expectations that diplomatic efforts could eventually reduce disruption to energy supplies.
But the fall in gasoline prices is not solely a result of changing geopolitical expectations. Seasonal factors, including lower demand after the summer driving period and the switch to cheaper winter-blend fuel, have also helped bring down prices.
Why are US gas prices falling?
The Iran war has been a major factor behind the increase in American fuel costs since February 28. Disruptions to shipping through the Strait of Hormuz, a key route for global oil exports, tightened supply expectations and pushed crude prices higher.
Around one-fifth of the world's oil supply normally passes through the waterway. The conflict and threats to shipping have therefore had consequences well beyond the Middle East, affecting energy markets and fuel prices worldwide.
However, traders have recently become more optimistic about the possibility of reduced tensions.
Trump said on Monday that further military action against Iran was not necessary at this stage, describing the situation as effectively a status quo. His comments followed a meeting with Qatar's prime minister, Sheikh Mohammed bin Abdulrahman Al Thani, who has been involved in diplomatic efforts.
The US president said there was positive momentum in discussions and that he saw a good chance the conflict could end. He also indicated that the US would maintain its naval blockade while remaining prepared for further military action if circumstances changed.
The political backdrop has also influenced market expectations. Democrats made significant gains in the November 3 midterm elections, taking control of both chambers of Congress. Investors have considered whether increased congressional scrutiny and potential restrictions on funding could make it harder for the administration to continue the conflict.
However, an immediate diplomatic breakthrough remains uncertain. Iranian officials have disputed US suggestions that negotiations are progressing, while attacks and security concerns around regional shipping routes continue.
Oil prices have also been influenced by supply expectations. OPEC production increased in October, led by higher output from Saudi Arabia, Kuwait and Iraq, according to a Reuters survey. Analysts have also pointed to signs of a potential global supply surplus as high prices weigh on demand.
Seasonal changes are providing another source of relief. US fuel retailers have shifted from summer-blend gasoline to cheaper winter formulations, while demand typically falls as the summer holiday and road-trip season ends.
The combination of lower crude prices, cheaper seasonal fuel and reduced demand has helped bring pump prices below $4.
Will drivers see further relief at the pump?
Energy analysts expect gasoline prices could decline further in the coming weeks, although the outlook depends heavily on developments in the Middle East and global oil supply.
Patrick De Haan, head of petroleum analysis at GasBuddy, expects prices to continue easing towards the Thanksgiving holiday period, provided there are no major geopolitical disruptions.
But the improvement in gasoline prices should not be confused with a broad reduction in energy costs.
Diesel remains particularly expensive. AAA recorded a national average of $6.1572 per gallon on November 10, compared with $3.7389 a year earlier. That represents an increase of nearly 65 per cent.
The higher cost of diesel matters because it is widely used to transport goods by trucks, trains and ships. Sustained increases can raise freight and distribution costs, which businesses may eventually pass on to consumers through higher prices for groceries and other products.
The Russia-Ukraine conflict has added to pressure on diesel supplies. Russia has historically been a major exporter of the fuel, but attacks on energy infrastructure and disruptions to exports have affected global availability.
The US is also hosting talks between Russian and Ukrainian officials in Abu Dhabi, marking the first trilateral negotiations since February. Any progress could influence expectations around energy supply, although a lasting resolution remains uncertain.
There are further risks in the oil market. The US Strategic Petroleum Reserve has been drawn down significantly this year, leaving it with its lowest crude oil stockpile since 1982, according to the figures cited in the source material. Refilling reserves could add to future demand for oil.
Analysts at ING have cautioned that the recent decline in crude prices may have been sharper than market fundamentals justify. Continued disruption around the Strait of Hormuz, renewed military escalation or setbacks in diplomatic efforts could quickly reverse the trend.
For now, American drivers are getting some relief after months of unusually high fuel costs. But with gasoline still substantially more expensive than a year ago and diesel prices remaining elevated, the drop below $4 is not yet evidence that the wider energy shock is over
