NJ gas is dropping below $4 — but here’s why I wouldn’t celebrate yet

I stopped at a Sunoco station in Mercer County this morning and took a photo of the price sign. Regular cash: $3.87. Regular credit: $3.97. I stood there for a moment and thought — I should feel better about this than I do.

The New Jersey statewide average according to AAA is $4.25 right now. A month ago that same average was $4.55. Sub-$4.00 gas is showing up at stations across the state and that is a meaningful shift. Prices have fallen about 30 cents statewide in the past week alone.

I want to give credit where it is due. And I want to be honest about how long this lasts.

Why prices dropped

When the war in Iran began on February 28, oil markets reacted immediately and dramatically. Brent crude — the global benchmark — jumped from around $72 a barrel before the conflict to a peak approaching $120. The Strait of Hormuz, through which roughly one fifth of the world's oil supply flows, was effectively choked off. Traders priced in prolonged supply chaos and pump prices followed within days.

Then ceasefire talks emerged. The war premium that had been built into every barrel of crude started draining out of the market. Brent fell nearly 19 percent in May alone — its worst monthly performance since the COVID pandemic.  As crude prices fell, wholesale gas prices followed and eventually the pump caught up. The $3.87 on that Sunoco sign is the math of a war that appeared to be winding down.

I have written pieces critical of the forces responsible for the price spike — the war in Iran, the New Jersey gas tax, oil companies that move pump prices up faster than they bring them down. Credit deserves to go in the same direction. The prices are dropping and real money is going back in people's pockets.

Why I would not celebrate too long

Here is what happened today while that Sunoco sign was showing $3.87. Iran launched new missile and drone attacks on US military bases in Bahrain, Kuwait and Jordan in retaliation for US strikes in the Strait of Hormuz. The Strait of Hormuz remains significantly disrupted. The IRGC warned its forces are prepared to deliver a crushing and decisive response to any further US action.

On top of that, US crude oil inventories have fallen for seven straight weeks according to the Energy Information Administration. The summer driving season is just getting started — peak demand has not hit yet. And a higher than expected inflation report this week adds economic pressure that could slow the signals helping ease oil prices.

The ceasefire optimism that drove Brent down from $120 to around $91 is real. The new escalation on the ground is also real. Those two things are pulling in opposite directions right now and oil traders know it — Brent is swinging sharply day to day as headlines flip from hopeful to alarming and back again.

When analysts talk about the Iran war premium they mean the extra cost built into every barrel because of uncertainty about supply. That premium deflated in May. It could reinflate in June. Today's news out of the Gulf is not encouraging.

SEE ALSO: My truth is I'd rather pump by own gas — and I did the math 

Gas pumps at Wawa on Route 1 in Lawrence Township

What to do right now

Fill your tank. Seriously. If you have been waiting to fill up, today is a better day than next week might be. The prices at the pump right now reflect May's optimism more than June's reality. If the situation in the Strait stabilizes further the prices could hold or drop more. If it deteriorates the direction reverses fast.

A month ago New Jersey drivers were paying $4.55 on average. It is $3.87 at a Sunoco in Mercer County today. That is real relief and I am not dismissing it. I am just old enough to remember standing at a pump watching a price I thought was temporary become the new floor.

Fill the tank. Hope for the best. Watch the news.