🔒Fuel prices likely to stay high amid global tensions, analyst says

Within the span of four days this week, the price of unleaded gas at the Buxton Mini Mart jumped 10 cents to $3.59 a gallon, while diesel surged 30 cents to $4.89. While those prices are still lower than the state average of $4 a gallon, fuel costs in Maine and nationwide are climbing again amid the resumption of fighting between the U.S. and Iran over the Strait of Hormuz, the shipping route for 20% of the world’s crude oil. One analyst warns that higher prices are likely to persist.

“As long as there’s more escalations, there’s more likelihood that oil is not going to be moving through the Strait for a longer period of time,” Patrick De Haan, a Chicago-based analyst with GasBuddy, told Mainebiz in a Thursday phone interview. As of Friday morning, the national average price for regular gas recorded by AAA stood at $3.98, up from $3.94 the day before and $3.88 a week ago. In Maine, the average price for regular gas was at $4 a gallon, up from $3.97 on Thursday and $3.88 a week ago. The U.S. average price for diesel was $5.05 on Friday, while Maine's average was $5.31. Depending on how the situation in the Middle East evolves, fuel prices could continue to head higher, De Haan warned. “The more escalation, the more attacks, generally the more risk and the higher oil goes,” he said. After briefly falling back to pre-Iran war levels, crude oil prices are on the rise again, climbing close to $80 a barrel on Friday. The price is up more than 39% so far this year.

Iran is only one factor.

De Haan says oil prices and the Iran conflict are only part of the story. In the world’s other major ongoing conflict, Ukraine’s attacks on Russian refineries are also squeezing fuel supplies. “Oil is a major part of the price of gasoline, diesel and jet fuel, but it’s not the only component, and refining capacity is finite,” he said. “Once you knock off and attack refineries, they don’t get built back overnight.” While New England benefits from abundant refining capacity elsewhere in the country, including along the Gulf Coast, the region has little refining capacity of its own and can be more exposed to supply disruptions. That was evident during the global oil price spike driven largely by Russia's invasion of Ukraine in 2022, when New England fuel prices surged above those in other parts of the country. “That could happen again,” De Haan said.

Price competition

Asked why retail prices can vary significantly between different parts of the country or even within a state like Maine, De Haan pointed to basic market forces. “A lot of it is just about competition and how aggressive a retailer wants to be,” he said. “Ultimately, retailers have to make a profit to stay in business, to pay the bills — to expand, for maintenance, for those type of things.”

De Haan also noted that some stations are more aggressive at lowering prices because they’ve figured out that it brings in more cars, more visits and more revenue. The same is true in the grocery industry, where a bottle of ketchup might be different at every single retailer, he said. “Ultimately, that bottle of ketchup probably is far more stable than the price of gasoline, which literally changes every 12 to 24 hours," he said. While De Haan doesn’t expect to see record prices in the short term, he warned that prices could inch higher by the end of the summer if tensions remain high in the Middle East. “By Labor Day, we could see gas prices 25 to 75 cents higher than where they are today if the Trump administration continues to escalate,” he said. Conversely, if tensions ease and a long-term deal is reached, prices could fall by 10 to 30 cents a gallon, he said. While gas prices are largely out of drivers’ control, De Haan said there are steps motorists can take to lower fuel costs. He suggests using apps and signing up for loyalty programs, but also driving more efficiently by using cruise control and anticipating traffic lights. “I see a lot of Americans in the ‘Indy 500’ racing light to light, and that consumes a lot more fuel in the process,” he said. "The harder your engine works, the more fuel you consume.”