Analysis: U.S. Fuel Prices to Stay High Amid Demand Bump


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- Last week, the national average price for a gallon of 
regular gasoline at the pump breached the $4-mark for the first time in four 
years. In March alone, it rocketed by more than 33%, driven by the oil price 
rally kicked off by the U.S.-Israeli war on Iran and the subsequent shut-in of 
almost a fifth of global petroleum supply. This week, retail prices inched 
lower as oil prices dropped in reaction to a two-week ceasefire. However, 
prices at the pump are set to stay elevated, amid an expected surge in domestic 
and international demand, and fuel prices will likely take weeks if not months 
to normalize once the largest oil supply crisis in history has been fully 
resolved.

   Front-month WTI futures have rallied 55% in March and are currently 50% 
higher than at the start of the conflict, on February 27. RBOB and ULSD futures 
mimicked the movement in crude futures. Consequently, retail gasoline prices 
have soared more than $1.2 gallon and were 27% higher than at the same time 
last year, according to the American Automobile Association. The surge in 
diesel prices was even steeper, with the national average topping $5.6 gallon, 
up 56% year-on-year.

   Oil prices are bound to soften with the reopening of the Strait of Hormuz 
and resumption of oil flows from the Persian Gulf, once permanent. They may, 
however, stay considerably above pre-war levels, as some oil and product supply 
will take time to be fully restored. Oil fields, refineries and loading 
terminals were damaged in the war, and production which was forced shut amid 
the lack of outlets will take time to return. Oil inventories, filled to the 
brim, will be able to bridge this gap on the export side, but a risk premium 
tied to the volatile geopolitical situation is likely to remain.

   The supply screws are being loosened just as the U.S. is heading into the 
main summer driving season and international demand for U.S. fuels is 
skyrocketing as refiners and consumers worldwide are scrambling to replace 
shut-in supply from the Middle East and curbed production from Asia. The Energy 
Information Administration last week reported U.S. product exports at an 
all-time high. Over the past four weeks, they have averaged more than 7.46 
million bpd, up 12% year-on-year.

   While the price increase in gasoline has been steep, it was dwarfed by the 
jump in diesel and jet fuel prices. In addition to cutting off millions of 
barrels of medium and heavy crude flows with a high diesel yield, the more than 
month-long de facto closure of the Strait of Hormuz has also shut in some 5 
million bpd of refined products, mostly in the form of middle distillates. The 
lack of crude flows forced refiners particularly in Asia to throttle production 
and halt fuel exports, further tightening global diesel supply.

   The EIA in its latest short-term energy outlook flipped the global inventory 
forecast for 2026 from a 1.9 million bpd build to a 300,000-bpd draw, with an 
average WTI spot price of $87.41 bbl, marking an 18.7% upward revision from 
last month's STEO. Given the steep increase in input costs and the outsized 
effect the Middle East supply crisis has on middle distillates, average 2026 
retail diesel and gasoline prices are expected to be 31% and 19% above year-ago 
levels, respectively.

   The current supply crisis underlying last month's price spike is affecting 
more actual barrels than the one leading to $5 gallon prices in the summer of 
2022 following Russia's invasion of Ukraine. This time around, the crude price 
rally was less pronounced as the market entered the current situation with much 
higher reserves, oil oversupply, and production in particular outside of the 
Middle East outgrowing demand for at least a year. Given the restraints on the 
fuels side, however, gasoline and diesel prices are likely to soften at a much 
slower pace than underlying oil prices.




(c) Copyright 2026 DTN, LLC. All rights reserved.