Implications of OPEC’s Unexpected Oil Cut on Gasoline Prices
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In recent news, OPEC and its allies have made a surprising move to slash oil production. This decision will have a significant impact on gas prices in the US. OPEC+ announced a cut of more than 1.6 million barrels a day, which will take effect from May until the end of the year. As a result, both Brent crude futures and WTI, the US benchmark, experienced a 6% increase in trading on Monday.
The effects of this production cut will be felt by US drivers sooner than the spike in oil prices. Gasoline futures, which saw an immediate impact, will lead to an increase in gas prices. RBOB, the most closely watched wholesale gasoline price, rose by about 8 cents a gallon or 3% during morning trading.
Tom Kloza, global head of energy analysis for OPIS, believes that OPEC’s decision is awakening the inflation monster. This move has shocked the White House and is likely to have a significant impact on gas prices for a while. Kloza predicts that the national average for US gas prices, which currently stands at $3.51, could quickly rise to $3.80 to $3.90 due to OPEC’s actions.
While gas prices won’t reach the heights of $5 per gallon, Kloza suggests that US drivers may soon face higher prices than a year ago. Factors such as hurricanes or other production-disrupting events along the Gulf Coast could further exacerbate this situation. In the aftermath of Russia’s invasion of Ukraine, gas prices reached a record high of $5.02 per gallon on June 14. However, prices gradually declined over several months, driven by the release of oil from the US Strategic Petroleum Reserve and concerns over a potential recession.
Although current gas prices are just below the average on February 23, 2022, Kloza emphasizes that US prices are unlikely to reach previous record levels. Additional releases from the Strategic Petroleum Reserve and increased US oil production and refining capacity provide some relief. However, making up for the 1 million barrels a day cut by OPEC+ will still pose a challenge.
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