As May concludes, oil prices are poised to experience their largest monthly decline in six years. This drop offers a glimmer of hope for investors hoping for stabilization in energy demand and relief for consumers facing high fuel prices.
Current trends indicate that prices, benchmarked by Brent crude, are set to decrease by over 20% this month, marking the steepest fall since 2020. In parallel, U.S. crude oil saw a significant decline of 19%, the largest drop observed since late 2021.
Consumer Relief on the Horizon
These downward price trends are already reflected in the declining average gas prices across the U.S. As of Friday morning, the average price for unleaded gasoline has dropped 17 cents from this year’s peak of $4.56, according to AAA data. However, Americans are still facing an average cost of $4.39 per gallon, representing a 47% increase since the onset of the war.
The rising prices have prompted many American drivers to seek more affordable options at major membership-based retailers like Costco. The company recently reported record gasoline sales, establishing the five-week period ending May 10 as the highest in history for its gas stations, with CEO Ron Vacris noting that many members are utilizing their facilities for the first time.
Political Influence on Oil Prices
The recent plunge in global oil prices can be largely attributed to communications from Washington. President Donald Trump and other top officials have indicated that negotiations between Iran and the U.S. are nearing an end, which may lead to a restoration of energy shipping norms that were in place before the conflict escalated.
Throughout May, President Trump repeatedly highlighted progress toward a peace agreement in at least six social media posts. He frequently states that Iran is eager for a deal while positioning himself as a key player in these negotiations.
Since the escalation of hostilities involving the U.S. and Israel against Iran, Trump has claimed on over 20 occasions that the war has been resolved or that a final agreement is imminent, according to an NBC News analysis.
As of Thursday, two U.S. officials informed NBC News that an updated version of a potential agreement with Iran is under consideration by President Trump, although a formal deal has yet to be signed. The following day, he hinted at the possibility of reaching a resolution on Truth Social, which led to further declines in oil prices.
Despite the ongoing uncertainties surrounding a formal agreement, Trump’s statements have contributed to a sense of optimism among investors.
Ground Realities of Shipping
Before the outbreak of hostilities in February, approximately 20% of the world’s energy supplies passed through the Strait of Hormuz. Since then, shipping traffic has diminished significantly, contributing to soaring global energy prices.
Unresolved questions loom regarding control over this crucial waterway and Iran’s demands for safe passage. Chevron CEO Mike Wirth stated on Bloomberg TV that the company is not inclined to pay fees or tolls to Iranian authorities for shipping routes. This stance reflects ongoing U.S. claims that such payments violate existing agreements.
Wirth explained that even if conflicts cease, resolving the safety issues, including clearing mines, could take months and not instantaneously restore shipping routes. Recent attacks on vessels in the region further exacerbate the risks associated with navigating the strait for commercial shipping, leaving the market in a precarious situation.
Warning of Imminent Price Increases
This week, industry leaders raised alarms about the imminent risk of rising oil prices. Exxon Mobil’s Senior Vice President Neil Chapman indicated that “commercial inventories of crude oil, gasoline, diesel, and jet fuel have all been depleted” due to restrictions on transportation through the Strait of Hormuz. He warned that the market is approaching “unprecedented inventory levels.”
Chapman anticipated that oil prices could surge from approximately $100 per barrel to over $150 in the coming weeks. Such an increase would likely drive gas prices to $9 per gallon in California, creating substantial economic challenges.
He emphasized that this spike would have wider-ranging implications beyond just fuel costs, given crude oil’s integral role in numerous products. Similar concerns were echoed by Chevron’s Wirth, who noted a consistent reduction in their product and crude oil inventories globally. He indicated that June and July could prove crucial months, as current inventory trends signal potential shortages ahead.
In speculating on future oil prices, Wirth commented that extended restrictions on shipping through the Strait of Hormuz raise questions about just how high prices might escalate.
