By Laura Sanicola
Oil futures fell sharply following the announcement of cease-fire between U.S. and Iran. But don't expect prices at the pump to fall as quickly or as significantly.
Average retail prices are currently at four-year highs of $4.16 for gasoline and $5.67 for diesel, according to AAA data.
In the West Coast, which is more exposed to imports from Asia, it's even higher at $5.93 for gasoline and $7.75 for diesel.
While benchmark crude futures have toppled more than 13% since the cease-fire was announced last night -- with diesel futures down about 14% and gas futures about 10% -- it's unlikely to result in gasoline falling by as much, according to Jaime Brito, Executive Director of Refining and Oil Products at OPIS.
Diesel and jet fuel flows from important export-oriented refineries in the Middle East such as Yanbu (SAREF), Mina Al-Ahmadi, and BAPCO have reportedly sustained damage and might not return to pre-conflict levels within these two weeks, according to Brito.
As a result, the price of those fuels relative to the price of crude oil -- known as the crack spread -- should remain relatively high.
"Jet fuel or diesel crack spreads [margins] could weaken from record highs seen over the last three weeks, but not nearly to pre-conflict levels, as volume and timing are not able to completely offset the loss of Middle Eastern exports to Europe," Brito says.
Oil prices would likely need to remain lower for a longer stretch of time before it trickles down to retail prices, which tend to fall much more slowly than they rise.
We last saw that in 2022 after western sanctions on Russian energy following its invasion of Ukraine. Gasoline futures fell 50% from peaks in June to the trough in December of that year, while retail gasoline prices fell about 35% in the same period, according to EIA data.
There are several reasons for this. Part of that is logistical; a gas station owner must price their current inventory based on what it will cost to refill their tanks tomorrow. If the wholesale price jumps overnight, the retailer raises their pump price immediately to ensure they have enough liquid capital to purchase their next shipment.
Because gas stations typically operate on thin profit margins during price spikes, they often use the wholesale dip to recoup some of their losses. As long as there isn't a local price war, station owners are incentivized to let the price drift down slowly rather than passing savings to the consumer the moment they receive them.
There's also a psychological element. As prices begin to retreat, consumers often stop shopping around as aggressively as when prices were rising sharply and stop looking for the station with the lowest price. This lack of competitive pressure from the public allows the downward trend to remain slow.
Whether oil prices stay lower will depend on the normalization of oil flows through the Strait of Hormuz, which have been effectively blocked for more than a month. Iranian officials told the press that the Strait could be opened only in a controlled way in coordination with Iran's military, a situation the U.S. is likely to find untenable. Israeli attacks on Lebanon could complicate the timeline.
Fuel prices could keep rising for months even after the Strait reopens given that a full restoration of oil flows would take months, the U.S. Energy Information Administration said yesterday. In a best-case scenario where fields are offline for a full month, BNEF estimates that close to 2 million barrels a day could return to the market by the end of April, with remaining volumes returning in May.
Write to Laura Sanicola at laura.sanicola@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 08, 2026 15:21 ET (19:21 GMT)
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