Regan Brown
Fuel prices are a highly discussed topic, especially with the recent conflict over Iran's nuclear program and the US strikes on Iran. The US Energy Information Administration (EIA) predicts that global oil inventories will put consistent downward pressure on oil prices, with the Brent price averaging $58 per barrel in 2026. However, the increase in oil prices due to geopolitical tensions and seasonal demand trends will likely lead to a rise in gas prices over the summer. While US presidents cannot control pump prices, their policies can influence fuel prices. Consumers can take advantage of shopping memberships and discounts to mitigate the impact of rising fuel prices.
| Characteristics | Values |
|---|---|
| Average regular gas price in the U.S. as of July 30, 2022 | $3.140 per gallon |
| Average regular gas price in the U.S. as of July 30, 2021 | $3.498 per gallon |
| Average regular gas price in the U.S. in June 2022 | $3.185 per gallon |
| Oil prices in June 2022 | $120 per barrel |
| Oil prices in August 2025 | $69 per barrel |
| Oil prices in 2026 | $58 per barrel |
| Henry Hub spot price forecast for 3Q25 | $3.40 per million British thermal units |
| Henry Hub price forecast for this year | $3.70 per million British thermal units |
| Henry Hub price forecast for next year | $4.40 per million British thermal units |
| U.S. natural gas inventories forecast for October 2025 | 3,910 billion cubic feet |
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What You'll Learn
Geopolitical risk premiums
The economic activity channel operates through increased uncertainty about the economic outlook, leading to negative effects on consumption, investment, and international trade. This results in a contraction in global economic activity and a subsequent dampening of global oil demand and prices. For example, when Russia invaded Ukraine in February 2022, Brent prices surged by nearly 30% in the initial two weeks, but eventually returned to pre-invasion levels within eight weeks.
On the other hand, the risk channel involves financial markets pricing in higher risks to future oil supply beyond the immediate geopolitical shock. This increases the cash value of holding oil contracts, known as the convenience yield, pushing Brent prices upward. However, it's important to note that large spikes in the global geopolitical risk index are not consistently associated with higher or more volatile oil prices.
Global refining margins, calculated by Wood Mackenzie, reached $8.37 per barrel in May 2025, the highest since March 2024. This was influenced by the US-China trade war and OPEC+'s flooding of the oil markets, which lifted refinery margins worldwide. Additionally, Canadian wildfires contributed to upward momentum in oil prices, and OPEC+'s production decisions remain a significant factor in price fluctuations.
The failure of Russia-Ukraine and US-Iran talks further confirmed the persistence of the geopolitical risk premium. These geopolitical tensions and their impact on oil supply and demand dynamics contribute to the complex dynamics of fuel prices.
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Oil inventories
For example, in June 2025, Brent crude oil prices surged by over 5%, pushing the price per barrel above $70. This increase was attributed to various bullish factors in the oil market, including optimism about the global economy under the Trump Administration's initiatives. However, oil prices can also be influenced by geopolitical risks and expectations of a US rate cut, as seen in the same month when WTI prices softened in the Asian session after a strong rally.
On a separate occasion, US crude oil futures remained relatively unchanged despite a reported surprise increase in weekly domestic crude inventories by the American Petroleum Institute. This stability in prices could be attributed to traders' concerns about the broader trade outlook, even with the announcement of the US-Japan trade deal. Chevron's agreement to restart oil production in Venezuela may have also contributed to the mixed signals in the market.
While oil inventories play a significant role in influencing fuel prices, it is important to note that other factors, such as geopolitical tensions, economic policies, and production agreements, also come into play. The complex interplay between these factors can lead to fluctuations in fuel prices, impacting consumers and the broader economy. Therefore, monitoring oil inventories is just one aspect of understanding the dynamics of fuel pricing.
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Production targets
The U.S. Energy Information Administration's (EIA) first Short-Term Energy Outlook report of 2025 predicts that oil production will increase through 2026, both globally and in the U.S. The administration expects the U.S. to produce 13.5 million barrels per day in 2025 and 13.6 million barrels per day in 2026, with growth slowing in the latter year.
The EIA also forecasts that global liquid fuel production will increase by 1.8 million barrels per day in 2025 and then by 1.6 million barrels per day in 2026. However, OPEC+ is expected to increase its output in 2025 as well, but this may be lower than originally targeted to avoid inventory build-up.
On July 5, OPEC+ announced that it would raise production targets for August, which were higher than the targets assumed by the EIA when compiling its outlook. Despite this, the EIA still expects significant global oil inventory builds, which will put consistent downward pressure on oil prices over the forecast period.
The West Texas Intermediate crude oil price is expected to average $62 per barrel in 2026, a decrease from $70 per barrel in 2025. This price drop is anticipated to occur in the global oil market as well, where production growth will outpace demand, pushing oil prices down through 2026 while slowing growth.
It is worth noting that the EIA's 2025 STEO was released before the United States issued additional sanctions targeting Russia's oil sector on January 10, 2025. These sanctions and the sensitivity of the Trump Administration to higher oil prices could have further implications for crude oil and commercial fuel prices.
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Natural gas prices
The global gas market is predicted to remain tight throughout 2025, and prices may fluctuate due to weather events and geopolitical tensions. The market is expected to stabilise in the latter half of the decade as new LNG export capacity comes online from Qatar and the United States. In January 2025, the US benchmark Henry Hub natural gas spot price averaged $4.62/MMBtu, an increase of $0.59/MMBtu compared to January 2024. This rise is attributed to colder-than-average temperatures, leading to increased demand for space heating and potential supply constraints.
In the short term, LNG demand and natural gas production will be key drivers of price. If LNG demand is higher or production is lower than expected, natural gas prices may be higher than forecast. Additionally, above-normal hurricane activity in the summer of 2025 could disrupt LNG exports along the Gulf Coast, resulting in increased US inventories and lower natural gas prices. In the long term, the demand for natural gas is expected to grow, especially in Asia, with a projected annual growth rate of 3%. Market analysts predict a 3% price rise over the next ten years.
The future of natural gas looks promising as it is seen as a greener and more sustainable fossil fuel option. The production of natural gas is increasing to meet the predicted demand, and the US is driving significant investment in this area. However, the lack of momentum in gas drilling reflects the uncertainty about future prices. Gas prices are influenced by regional factors such as weather and storage levels. While natural gas prices are expected to rise, factors such as increased supply from Shale gas deposits and weather conditions can impact the price trajectory.
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Inflation
In the context of fuel prices, inflation can cause them to increase over time. Fuel prices are influenced by a variety of factors, including crude oil prices, geopolitical events, and market demand. When the general price level of goods and services increases due to inflation, fuel prices tend to rise as well. This is because the costs of producing and distributing fuel also increase, leading to higher prices at the pump.
For example, in June 2025, the United States dropped bombs on nuclear sites in Iran, causing West Texas Intermediate (WTI) crude oil prices to jump to over $73 per barrel. This sparked concerns that intensifying conflicts in the Middle East could send prices above $100 per barrel. As a result, drivers in the United States were advised to brace for a slow but steady rise in gas prices over the summer, with the possibility of sudden spikes depending on Iran's response.
Additionally, inflation can affect fuel prices indirectly through its impact on interest rates and monetary policy. Central banks often respond to high inflation by raising interest rates, which can lead to higher financing costs for oil and gas companies. This, in turn, may cause these companies to pass on the increased costs to consumers in the form of higher fuel prices.
It's worth noting that fuel prices can also be influenced by factors beyond inflation, such as seasonal demand trends and geopolitical risks. For example, during the summer, demand for gasoline typically increases, driving prices up. Similarly, conflicts or tensions in oil-producing regions can impact supply and cause fluctuations in fuel prices.
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Frequently asked questions
It is difficult to say exactly how much fuel prices will increase, but drivers in the United States should expect a slow but steady rise in gas prices over the summer, with some risk of sudden spikes depending on how Iran responds to the attacks. Oil prices jumped to over $73 per barrel after the US strikes on Iran, and there are concerns that prices could go above $100 per barrel.
There are several factors that can influence the rise in fuel prices. One factor is geopolitical events, such as the conflict in the Middle East or the situation with Iran's nuclear program. Inflation can also play a role, as it can prevent central banks from cutting interest rates, which can impact fuel prices. Additionally, production targets and trade policies can also have an effect on fuel prices.
One way to save money on fuel is to take advantage of shopping memberships that offer gas discounts. Warehouse clubs like Costco or Sam's Club often offer gas at a discount, and combining a membership with a cashback credit card can further increase your savings. Amazon and Walmart also offer gas discount perks, giving members up to 10 cents off per gallon at gas stations in their networks.
While fuel prices may fluctuate in the short term, the larger trend suggests that prices will continue to rise. Wholesale power prices are expected to increase by 12% this summer compared to last year, and natural gas prices, while lower than previously forecasted, are still higher than last summer. The Henry Hub price is expected to average $4.40/MMBtu next year, reflecting an expectation of decreasing production and increasing LNG exports.
