Gas prices expected to rise – but not necessarily because of Iran-Israel fight

Gasoline prices are expected to rise over the next few days – but not necessarily because of turmoil in the Middle East. 

Over the next day or so, states in the Northeast and mid-Atlantic are expected to switch to more expensive gasoline blends for the summer, leading to higher prices at the pump.

“This week happens to be a transitional week where a bunch of very populous states:  New York, Pennsylvania, New Jersey, New England, and some others, all switch to the summer gasoline blend, which is about 30 cents more expensive,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. 

“You’ll see some places in the Northeast that’ll approach $4 a gallon and the national average…probably goes up to about $3.75 or a little bit more and then it recedes,” Kloza said. 

In the summer, higher temperatures increase the risk that some gasoline components could evaporate and create smog, so states switch to a more expensive and less volatile blend of gasoline. 

Gasoline demand also tends to be higher in the summer, which can raise prices further.

The West Coast could also see an increase because of refineries going offline for maintenance ahead of the heavy summer driving seasons. 

“The West Coast has been seeing some pretty potent price increases here in the last week or so, because of refinery maintenance that is still happening and will continue to happen,” said Patrick DeHaan, head of petroleum analysis at gasoline price app GasBuddy. 

Analysts say Iran’s aerial attack on Israel will not necessarily raise prices — unless the conflict ratchets up even further.

Over the weekend, Tehran announced a drone and missile attack on Israeli targets in retaliation for an Israeli airstrike on Iran’s consulate in Damascus earlier this month. Israeli and U.S. officials have said 99 percent of drones and missiles were intercepted by air defenses, and the only known injury as of Monday was to a Bedouin child.

Oil prices dropped by about $1 a barrel Monday morning after it became apparent over the course of the weekend that the strikes had not caused major damage or injuries, and the Iranian government said it did not intend to take further retaliatory action.

However, it remains to be seen how the Israeli government will respond to the strikes, which mark Iran’s first-ever direct strike on Israel after years of conflict between Israel and Iranian proxies.

DeHaan said that the reason “why the oil market is down today is because [a] largely unsuccessful attack being the response, it didn’t measure up to the concern that the market had.”

Still, it’s not clear where the conflict will go next and analysts say they’re awaiting Israel’s response.

Moody’s Analytics energy economist Chris Lafakis said the organization believes that Israel will ultimately respond in a way that de-escalates the situation, meaning the price of oil will likely “float around” its current level — with U.S. benchmark West Texas Intermediate (WTI) at around $86 per barrel on Monday afternoon while international benchmark Brent crude was at $90 per barrel. 

However, Lafakis estimated there’s about a 25 percent chance that the country will instead jack up the conflict, which he said would cause oil to “quickly rise to $100 per barrel” —  resulting in an additional 25 cents per gallon for consumers. 

Despite the relatively calm oil market, the broader conflict is likely impacting oil prices. 

Kloza said that around $4 or $5 has already been priced into oil costs due to the conflict of the last several months.  

He said this is because “at any moment, we could wake up to a headline where the war in the Middle East is broadened.”

Lafakis also put that premium at around $5 per barrel, attributing it to the October 7th attack on Israel bringing Israel and Iran closer to conflict, increased attacks on shipping by Houthi militants and the recent attack on Iran’s consulate in Syria. 

Kloza said this means Americans are likely paying an extra 10 to 20 cents per gallon, while Lafakis said the already baked-in price hike amounts to about 10 to 15 cents. 

Gasoline prices stood at $3.63 Monday, up a fraction of a cent over the Sunday average and nearly 20 cents from a month ago, but lower than the $3.66 average a year ago. 

In the months ahead, DeHaan said, the nation’s average gasoline prices are expected to be in the “mid-to-upper $3 range” from now until August and could come down “fairly notably” due to cyclical reasons.