US Gasoline Prices See 42% Spike on Iran War Fallout

A JP Morgan report reveals the U.S. is bearing a disproportionate share of the fuel price shock from the Middle East conflict, with gasoline price hikes outpacing most of the world.

The energy market shock from the conflict in the Middle East is hitting the United States far harder than anticipated, with a JP Morgan report showing retail gasoline prices have surged over 42% since the war's start, a rate that unexpectedly ranks among the highest in the world.

"The projections for record seasonal low fuel inventories are the latest indication that the global energy supply crunch appears set to continue for months to come," Morgan Stanley analysts wrote in a Monday note, forecasting gasoline stockpiles will fall below 200 million barrels by August.

The U.S. national average for gasoline has surpassed $4.50 a gallon for the first time since July 2022, according to data from GasBuddy. This price pressure is not isolated to gasoline; JP Morgan's analysis from February 27 to April 27 shows U.S. price hikes for jet fuel, naphtha, and fuel oil have become the highest globally. In contrast, gasoline price increases in major European economies like the UK, France, and Germany have been notably more moderate.

The surprising severity of the U.S. price spike stems from a confluence of tightening global supply and specific domestic pressures, including collapsing imports and refinery production shifting away from gasoline to more profitable distillates like diesel and jet fuel. With U.S. gasoline inventories projected by Morgan Stanley to hit historic lows of around 198 million barrels by late summer, consumers face the prospect of sustained high prices through the peak driving season.

A Tale of Two Crises: Asia and America

The JP Morgan report characterizes the energy crisis as having "two sides of the same coin," with Asia and the Americas experiencing the shock through different but connected mechanisms. The most direct supply impact has been felt in Southeast Asia, which relies heavily on oil products shipped through the Middle East. Nations like Myanmar, Malaysia, and the Philippines have seen significant price jumps, with the regional average increase hitting about 37 percent.

However, the U.S. has unexpectedly surpassed this, with its 42 percent gasoline price surge placing it among the top-tier of impacted nations, a stark contrast to the belief that its domestic energy production would provide a buffer. The logic behind the American price surge lies in the global, interconnected nature of the refined products market. While Asia's problem is a direct lack of supply, the U.S. is feeling the ripple effects as global trade flows re-route and prices are bid up worldwide. Elevated exports from the U.S. to markets in Latin America and Europe, which are now receiving fewer barrels from the Middle East, are further tightening the domestic market.

Refinery Choices and Dwindling Stockpiles

Domestic factors are amplifying the global price pressures. According to Morgan Stanley, U.S. refiners are choosing to maximize production of diesel and jet fuel over gasoline, drawn by higher profit margins for those products. This shift in refinery yields, combined with a sharp drop in gasoline imports, is accelerating the drawdown of inventories ahead of the summer driving season.

Imports fell to an all-time weekly low in the week to April 10, and arrivals from Europe in May are set to remain well below typical levels. The result is a forecast that U.S. gasoline inventories will fall to around 198 million barrels by the end of August, a level Morgan Stanley notes would be the lowest for this time of year in modern data and below the trough seen in the 2022 energy shock. While gasoline margins are already near $35 a barrel, reflecting much of the tightness, the bank sees a risk of another $10–$15 a barrel increase if geopolitical tensions persist.

This article is for informational purposes only and does not constitute investment advice.