Gas Prices Impacted by OPEC’s Unexpected Oil Cut Decision
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In recent news, OPEC and its allies have made a surprising move to slash oil production. This decision will soon have an impact on US gas pumps. OPEC+ announced that they would be cutting oil production by over 1.6 million barrels a day starting in May and continuing until the end of the year. As a result, both Brent crude futures and WTI have seen an increase of about 6% in trading.
While the spike in oil prices may take time to be felt, the announcement of the production cut has already affected gasoline futures. This increase in wholesale gasoline prices will be passed on to US drivers much quicker. RBOB, the most closely watched wholesale gasoline price, has seen a rise of about 8 cents a gallon, or about 3%, in morning trading.
This decision by OPEC is expected to awaken the inflation monster, according to Tom Kloza, global head of energy analysis for OPIS. The White House and US drivers will be impacted significantly. With this development, the national average for US gas prices could increase to $3.80 to $3.90 in a relatively short period of time.
However, Kloza does not believe that gas prices will reach the levels of $5 a gallon. He also mentions that if there are any hurricanes or storms affecting production along the Gulf Coast, US drivers could be paying even higher prices by the end of the summer compared to the previous year.
In the wake of Russia’s invasion of Ukraine in 2022, US gas prices reached record levels. However, Kloza believes that we will not see a repeat of those prices. The US has plans to release more oil from the Strategic Petroleum Reserve, and they also have increased oil production and refining capacity. Nevertheless, the 1 million-barrel-per-day cut by OPEC+ will not be easily compensated for.
Despite the challenges, he acknowledges that OPEC+ has the ability and motivation to cut production. This move will have significant implications on the oil market, which in turn affects gas prices. As an observer of the energy market, Kloza expects that these changes will alter the calculus for a while.
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