Expected Drop in Oil Prices
Oil prices are anticipated to decline by around 20% this May, marking the steepest monthly fall since 2020. This shift comes as gasoline prices begin to decrease and investors express optimism about a potential resolution to the ongoing conflict in Iran.
According to AAA, the national average for gasoline has dropped to $4.39 per gallon as of Friday. While this is approximately 17 cents lower than this year’s peak of $4.56, it still sits nearly 50% higher compared to prices before the conflict began.
Brent crude oil saw a decline of 1.3%, resting at $91.51 a barrel by 2:50 p.m. ET on Friday. Expectations suggest it may fall about 20% from its peak in 2026.
Meanwhile, West Texas Intermediate dropped by 1.9% to $87.19 on Friday, also on course for a significant monthly decrease of 19%.
The downturn in oil prices accelerated on Thursday when the White House confirmed that U.S. and Iranian negotiators were close to finalizing a deal related to reopening the Strait of Hormuz.
Further losses in oil prices were observed on Friday following President Trump’s announcement on Truth Social that he would meet in the Situation Room “to make a final decision” regarding the deal.
In the background, both the S&P 500 and Nasdaq reached new highs this week—a clear indication that traders are hopeful about a quick conclusion to the war, despite much of the strait remaining obstructed and warnings from oil executives about dwindling supplies.
ExxonMobil’s senior vice president Neil Chapman sounded alarms regarding global oil inventories, hinting that oil prices could potentially skyrocket to $150 a barrel in a matter of weeks.
“We’re approaching unprecedented lows in our inventory levels,” said Chapman during a Bernstein-hosted conference in New York.
He noted, “The debate about whether we hit a critically low point will unfold in the next few weeks. If we do, expect prices to soar.”
Chapman cautioned that prices could exceed $150 per barrel, which might translate to about $9 for gasoline in California, leading to significant issues.
Additionally, Chevron CEO Mike Wirth remarked on Friday that energy inventories are tight in light of strong demand, suggesting it may take weeks for prices to stabilize.
When questioned on Bloomberg TV about why we haven’t seen $200 per barrel oil yet, Wirth explained his belief that “the end is near; the conflict is largely resolved, and traffic through the strait will resume soon.”
However, Wirth acknowledged that “it will take many months” to clear mines and ships from the strait. “It’s not an instant process; it requires time,” he said.
This week witnessed new attacks on ships, and Wirth expressed concerns that “the risks remain very real” in this context.
On a related note, U.S. stockpiles have helped somewhat offset the impacts of supply disruptions.
Jeff Krimmel, founder of Krimmel Strategy Group, noted, “The decline in oil inventories is largely coming from the Strategic Petroleum Reserve.” He mentioned that commercial inventories have decreased by around 25 million barrels this year, and reserves have dropped by 40 million barrels, according to the U.S. Energy Information Administration.
“The market isn’t currently worried about a supply shortage here in the U.S. because commercial inventory levels remain solid,” Krimmel stated.
He added, “Nonetheless, if crude oil supplies through the Strait of Hormuz aren’t restored soon, international demand for U.S. crude could rise, possibly leading to inventory compression that impacts prices.”
Analysts predict that it might take six to eight weeks for oil prices to stabilize post-conflict, factoring in the time needed to identify ships capable of navigating through the strait. Damage to energy facilities in the Middle East could also prolong the disruption.
Treasury Secretary Scott Bessent has indicated that oil and gasoline prices would significantly decrease once the conflict wraps up.
