Implications of OPEC’s Unexpected Oil Cut on Gasoline Costs

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Now, let’s talk about the recent news regarding OPEC and its allies’ decision to slash oil production. This decision is going to have a direct impact on US gas prices. OPEC+ announced a cut in 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, the US benchmark, saw a significant increase in trading on Monday.

This production cut also has an immediate effect on gasoline futures. The increase in gasoline prices will be passed on to US drivers much faster than the spike in oil prices. RBOB, the most closely watched wholesale gasoline price, was up about 8 cents a gallon, or approximately 3%, in morning trading.

“I think OPEC is reawakening the inflation monster,” said Tom Kloza, global head of energy analysis for OPIS. “The White House has to be shocked and major-time pissed. It certainly alters the calculus for a while.”

The national average for US gas prices currently stands at $3.51, according to AAA. Kloza predicts that this price could rise to $3.80 to $3.90 in a relatively short period, thanks to OPEC’s decision.

However, it is unlikely that gas prices will reach the record levels of 2022, which peaked at $5.02 a gallon. This is mainly due to the US plans for additional releases from the Strategic Petroleum Reserve and the increased US oil production and refining capacity. Nevertheless, the 1 million-barrel cut by OPEC+ will still have a significant impact, and it will not be easy to make up for this reduction.

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