Implications of OPEC’s Unexpected Oil Cut on Gas Prices
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In the latest news, OPEC and its allies have made a surprising move to slash oil production. This decision will soon have an impact on US gas prices. OPEC+ announced on Sunday that they will be cutting oil production by over 1.6 million barrels a day, starting in May and continuing until the end of the year. This news caused both Brent crude futures and WTI to increase by approximately 6% in trading on Monday.
The announcement of the production cut also had an immediate effect on gasoline futures. These price changes will be passed onto US drivers much faster than the increase in oil prices. RBOB, the wholesale gasoline price that is closely watched, saw an increase of around 8 cents per gallon in morning trading.
Tom Kloza, the global head of energy analysis for OPIS, has commented on the situation. He believes that OPEC is reawakening the inflation monster and that the White House must be shocked and upset. This decision by OPEC will definitely change the dynamics for a while.
As of Monday, the average US gas price was $3.51 per gallon according to AAA. Kloza expects this number to quickly rise to $3.80 or even $3.90 due to OPEC’s move. However, he does not think it will reach $5 per gallon and doubts it will even hit $4. He does mention that US drivers could be paying more than the prices from the previous year, especially if there are any hurricanes or storms affecting production along the Gulf Coast.
Looking back to the previous year, the average US regular gas price was $4.19 per gallon in the aftermath of Russia’s invasion of Ukraine. Eventually, this price reached a record high of $5.02 per gallon on June 14, but it then started a slow decline over the course of three months. The decline was partly due to the release of oil from the US Strategic Petroleum Reserve, as well as concerns of a possible recession that would reduce the demand for gasoline.
Currently, US gas prices are slightly below the average seen on February 23, 2022, which was $3.53 per gallon, the day before the invasion of Ukraine. Kloza explains that one of the reasons prices haven’t reached the record levels of 2022 is because the US plans to release more oil from the Strategic Petroleum Reserve, and US oil production and refining capacity are both increasing. However, it will still be difficult to make up for the 1 million barrel per day cut in production by OPEC+.
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