Fragile ceasefire between US and Iran still expected to weigh on gasoline in 2026

Markets breathe a sigh of relief with the fragile ceasefire between the US and Iran, which survived the long weekend, while progress is made in a possible agreement to end the war.

American stock markets are flirting with historic highs and oil futures have retreated from the US$ 100 per barrel mark.

Still, it is too early to sound a warning sign about this history-making energy crisis. Some analysts warn that $5 gas is still a real danger this summer.

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First of all, mere chatter about a vague deal on social media is far from enough for investors.

The market needs to see that a concrete agreement has been reached, in which both sides agree not only to end the war, but also to reopen the Strait of Hormuz, the strategic waterway that Iran has used to hold the world economy hostage.

"Nothing has fundamentally changed. The strait remains closed," said Rory Johnston, oil market researcher and founder of Commodity Context.

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Johnston emphasized that Tehran is reluctant to reopen the strait because it remains Iran's main pressure point.

"Once they open that tap, they quickly lose bargaining power," he said.

"I'll believe it when I see it"
Secondly, the market wants proof that the Strait of Hormuz is actually reopening, preferably without tolls or fees that inflate the already high cost of oil.

To resolve the supply shock, the flow of oil tankers through the Strait of Hormuz needs to return to pre-war levels.

"I'm skeptical. I'll believe it when I see it," Bob McNally, founder and president of Rapidan Energy Group, told CNN in a phone interview.

Some big Gulf players are also skeptical.

Sultan Al Jaber, CEO of ADNOC, Abu Dhabi's state oil company, said last week that even if the conflict ended immediately, it would take at least four months to return to just 80% of pre-conflict flows through the strait.

Full recovery to pre-war flows is unlikely before the first half of 2027, ADNOC CEO said.

There is also uncertainty about whether the ceasefire will even hold.

Brent crude futures rose 4% on Tuesday, giving back some of Monday's big drop, as tensions remain high in the Gulf.

US forces carried out "self-defense strikes" targeting Iranian missile launch sites and vessels around the Strait of Hormuz.

Notably, American officials said the strikes were aimed at vessels attempting to lay mines, a reminder of both the fragile nature of the ceasefire and the dangers faced by ships attempting to transit the waterway.

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"Brutal" mathematical problem
Even in the best possible scenario, in which the ceasefire holds, an agreement is reached and the strait reopens, serious damage to the global energy system has already been caused.

More than 1.2 billion barrels of oil were damaged by the war, according to S&P Global Energy. And that total increases every day that the Strait of Hormuz remains largely closed.

Not only has supply fallen, energy demand is increasing because the summer travel season has begun.

"Even in the best case, a fundamental market squeeze is already in place. There is this brutal, inexorable math that cannot be changed by a deal," McNally said.

"I don't want to be pessimistic, but we don't believe it's over."

McNally still expects Brent crude oil futures to return to $120 or even $130 a barrel and for U.S. gasoline prices to approach the all-time high of $5.02 per gallon set in June 2022.

Gas prices have stabilized in recent weeks at around $4.50 per gallon, compared with $2.98 when the war began.

Johnston said that if the Strait of Hormuz remains closed for the next month, gasoline prices will most likely surpass Biden-era all-time highs.

"If it ends today, it's a more complicated issue," Johnston said. "We will have immediate relief with a wave of sales, but it will still take months to normalize flows through the strait."

"We could fall and then gradually rise to historic highs as everyone gets back to doing the math."

Oil at $100 even after a deal?
Oil industry experts agree that pre-war energy prices are not likely to return anytime soon - unless the economy collapses.

JPMorgan predicts that even after the Strait of Hormuz reopens, Brent will average $104 per barrel in the third quarter and $98 in the fourth quarter of this year.

Kevin Book, chief executive of ClearView Energy Partners, said that within weeks or months of a deal, the strait could be cleared, ships stuck in the Persian Gulf could be evacuated, new ships could enter and oil production could resume.

However, he warned that it will likely take longer - many months or even years - to repair damaged facilities, fully restore production and replenish dwindling stocks.

"I don't think anyone is expecting a return to the $60 per barrel oil average anytime soon," Book told CNN. "It will take a while for supply to flow again."

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Source: CNN