Gas prices are dropping — but they're still high

Pain at the pump is easing, but gas is far costlier heading into the summer than last year — and what comes next is wildly unpredictable.

Why it matters: High gas prices are the most visible economic effect of the Iran war for many Americans grappling with inflation.

Driving the news: The U.S. average price for regular is $4.39 per gallon on Friday, per AAA — down 16 cents over the last week as the U.S. and Iran closed in on a possible deal to extend the ceasefire.

• But it's still far above the roughly $3 that Americans were paying right before the war started.
• Prices are seeing their largest weekly drop of the year, Patrick De Haan, head of petroleum analysis at the fuel data and analysis firm GasBuddy, posted on X.

The big picture: Retail gas prices are tethered to oil prices set on global markets, even though the U.S. is the world's largest producer and imports relatively little from the Middle East.

• Gasoline is falling as oil prices — while volatile — have been trending generally lower since mid-May.

Yes, but: Don't expect a quick return to pre-war prices or anything close for the foreseeable future — and prices could rise again.

• Even if a U.S.-Iran deal becomes official, it's not clear whether tanker owners will feel confident enough to transit the Strait of Hormuz in large numbers anytime soon.
• And even if they do, the global market will remain tight for a long time — and the situation is getting even more dire as countries' stockpiles are drawn down.

"Following the clearance of any mines, a minimum of two to three months will likely be required to re‑establish steady export operations," the International Energy Agency said in its mid-May oil market report.

• Plus, Persian Gulf countries that cut production when the main export route closed will need to revive it — and it's not like flipping a switch.
• And oil prices include the potential for the fighting to start again, which is definitely not zero.

Zoom out: Other structural forces will act as a check on how much pump prices fall. One is that U.S. fuel demand is higher in the summer.

• U.S. gasoline inventories fell again the week ending May 22, and are 6% below the five-year average for this time of year, the U.S. Energy Information Administration reported Thursday.
• "Gasoline storage has been down for 15 weeks in a row at a time of year when refiners usually stuff the motor fuel into storage in anticipation of summer driving season," Robert Yawger of the investment firm Mizuho Securities USA said in a note Thursday.

My thought bubble: If prices keep falling, it raises an interesting political question: How much will it matter to voters in the midterm elections if prices are going down, if they're still relatively high?

• It's relevant because analysts see prices remaining above pre-war levels through the fall and beyond.

What we're watching: The White House has been pulling various levers to try to temper prices.

• Earlier this month, President Trump said he wanted Congress to suspend the federal gas tax. But there's little apparent movement on Capitol Hill.
• "It's something we might talk about. Let's see what happens over the next week or two weeks. A lot of good things are happening," Trump told reporters on Wednesday.