U.S. Gas Prices Hit $4 a Gallon Again as the Iran Conflict Grinds On. 2 Things Investors Need to Know.

The average U.S. gas price for regular unleaded gas is back above $4/gallon, according to AAA.

The current average price across all 50 states rose to $4.003/gallon on Monday. That’s about $0.13 more than it was a week ago, when it came in at $3.872/gallon. And it’s 27% higher than it was a year ago, when it was just $3.141/gallon.

Mid-Grade, Premium, Diesel, and E85 ethanol-based fuels also spiked about the same amount. Diesel fuel, widely used by 18-wheeler trucks hauling trailers, now sells for an average of $5.108/gallon.

Here’s why gas prices may not be done going up, and 2 ways it’s likely to impact the stock market.

Image source: Getty Images.

Collapse of the ceasefire

A fragile ceasefire had been in place between the U.S. and Iran since the signing of a Memorandum of Understanding (MOU) on June 17. However, some terms of the MOU were open to interpretation, leading both sides to accuse each other of not abiding by the ceasefire’s terms.

In early July, Iran launched attacks on commercial ships in the Strait of Hormuz. In response, the U.S. revoked sanctions waivers that had allowed Iran to sell oil and conducted retaliatory strikes against Iranian military targets.

After additional strikes on various targets from both sides, President Trump declared the ceasefire over on July 8. The U.S. has resumed its bombing campaign, and the Iranian regime has continued attacking ships passing through the Strait of Hormuz and U.S. and allied targets in the region.

The reigniting of hostilities caused the price of benchmark Brent Crude to spike from $71.57/barrel on July 1 to $88.45/barrel on Monday. That’s the highest it’s been since June 13. And it’s much higher than the $60.75/barrel at which it started the year.

The impact on stocks

One takeaway for investors is what you’d expect: rising oil prices have boosted the fortunes of U.S. oil company stocks and hurt airline shares.

Since July 1, ExxonMobil’s (NYSE:XOM) stock has risen 9.3%, ConocoPhillips’ (NYSE:COP) stock is up 12.8%, and Chevron’s (NYSE:CVX) shares have soared 14.9%. With minimal production assets in the Middle East, the companies are expected to reap the benefits of higher global oil prices without experiencing crippling supply constraints.

Meanwhile, airline stocks have been punished as rising oil prices have caused jet fuel prices to soar again. Since July 1, shares of Delta Air Lines (NYSE:DAL) have slipped 9.6%, and United Airlines Holdings (NASDAQ:UAL) shares are down 13.4%, after both stocks rose throughout May and June.

Interestingly, shares of shipping and logistics companies, as well as other companies for which fuel costs are a major factor, haven’t seemed to be affected by the recent spike in gas prices. Shares of trash hauler Waste Management (NYSE:WM) and exterminator Rollins (NYSE:ROL) are both up more than 6% since July 1, while shipper UPS (NYSE:UPS) and freight logistics company XPO (NYSE:XPO) were up 3.7% and 1.9%, respectively.

The impact on the future

Unfortunately for consumers who just want to fill their gas tanks without emptying their wallets, the collapse of the recent ceasefire makes a long-term solution far less likely. And at this point, a long-term solution may be the only thing that can calm global oil markets.

Over the weekend, Iran’s Revolutionary Guard – without claiming responsibility – announced that two commercial tankers exploded while attempting to traverse the Strait of Hormuz near the Omani coast. This incident will further discourage tanker companies (and their insurers) from resuming traffic through the Strait. That will keep global oil prices high, which in turn keeps U.S. gas prices high.

Image source: Getty Images.

Over the past five months, oil futures moved based on statements that progress was being made in Iran, whether such progress was apparent or not. With the MOU and ceasefire now in tatters, futures markets will likely demand more than promises of a lasting resolution in the Strait. In other words, some tangible evidence of progress might be required to make oil prices drop from their current levels. But such progress will be even harder to come by.

That’s good for U.S. oil company stocks... and bad for just about everyone else.

John Bromels has positions in WM and XPO. The Motley Fool has positions in and recommends Chevron, Rollins, and United Parcel Service. The Motley Fool recommends ConocoPhillips, Delta Air Lines, WM, and XPO. The Motley Fool has a disclosure policy.