Gas Prices Will Stay Higher for Longer, Even if Oil Falls

Despite President Trump's efforts to calm crude oil markets amid the Iran war, gasoline prices remain stubbornly high at $3.94/gallon, 32% above pre-war levels, while crude oil is only 18% higher at $80/barrel. The disconnect stems from refined fuel markets lacking the buffers that crude oil had. China dramatically cut crude imports to 5.7 million barrels/day in June, providing a shock absorber for crude, but did not similarly reduce refined product exports. Strategic petroleum reserve releases were overwhelmingly crude oil, not gasoline or diesel. Meanwhile, global refining capacity has been severely curtailed: Middle Eastern refineries processed 20% less due to Strait of Hormuz disruptions and Iranian strikes, while over a quarter of Russian refining capacity was knocked offline by Ukrainian drones. Russia imposed a short-term diesel export ban and began importing gasoline from India and Belarus. Global gasoline inventories are 3% below the five-year average, expected to widen to 4%. Analysts warn that even if oil prices fall, gasoline and diesel prices will remain elevated due to these structural refining constraints.