Average US gas price drops below $4 – barely

By Chris Isidore, CNN

(CNN) — American gas stations are now charging less than $4 for a gallon of regular gas, dropping below that benchmark for the first time since March 30.

The US national average dropped to $3.999 per gallon on Thursday, according to AAA, down nearly 3 cents from the day before. Indiana has the cheapest average price at $3.40, one of 28 states where the average price is below $4. GasBuddy, another tracking service, puts the price early Thursday at about $3.98, after falling below the $4 on Sunday.

The milestone comes just as the Strait of Hormuz is set to reopen, part of an official memorandum of understanding between Iran and the United States to end the war. The strait’s closure in late February choked off about 20% of the world’s oil supply, causing gas and oil prices to soar.

The national average price at the pump has fallen every day since hitting a high of $4.56 on May 21 on hopes that ongoing negotiations would lead to a reopening of the strait. But even if prices continue to fall, experts don’t expect them to hit the pre-war average of $3 per gallon any time soon.

First, it will take time for the flow of oil to return to normal levels.

Matt Smith, lead oil analyst at Kpler, told CNN it will likely take three or four months to fully get tankers sailing through the strait again. To replenish supplies lost during the months of fighting will take even longer, he added.

But ships stuck in the Persian Gulf aren’t the only issue. Much of the oil production and refining in the region essentially shut down when tankers were cut off. Some oil facilities were also damaged by the fighting, so it will take some time to get them back online, according to experts.

And crude is a global market. Even if relatively little oil from the Middle East is bound for the United States, the world’s largest oil producer, its flow still determines what American consumers and businesses pay. And long-term oil prices, which is the biggest influence on the price of gas, don’t show signs of falling back below the pre-war $70 a barrel level any time before the next decade.

Gas station owners will also lower prices at a slower pace than they raised them. That’s because many cut into their own profit to stay competitive as wholesale gas prices rose. Many may now try to make up for that loss.

“There’s an old expression – gas prices go up like a rocket and come down like a feather,” said Tom Kloza, an independent oil analyst and advisor to major oil company Gulf Oil.

That is part of the reason that the average retail price has fallen by an average of only 2 cents a day since its peak. Compare that to the more than $1 price hike during the first month of the war, the largest one-month jump this century.

Excess oil inventories and releases from emergency reserves around the world kept oil and gas prices from going even higher. With inventories now at the lowest levels in decades, some experts expect pump prices could climb well above $4 a gallon again later this summer as the driving season heats up. And even if it doesn’t, getting back below $3 again is extremely unlikely.

“We’ll figure out what the new normal is,” said Dan Pickering, founder and chief investment officer at Pickering Energy Partners. “But it isn’t going to be $2.85 gasoline.”

CNN’s David Goldman contributed to this report.

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