Implications of OPEC’s unexpected oil production reduction on gas prices

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In recent news, OPEC and its allies have made a surprising decision to slash oil production, which will soon impact US gas prices. Starting in May and continuing until the end of the year, OPEC+ will cut oil production by more than 1.6 million barrels a day. This announcement has caused both Brent crude futures and WTI to increase by approximately 6% in trading.

The effect of this production cut will be felt by US drivers much sooner in the form of increased gasoline prices. In morning trading, wholesale gasoline prices were up about 8 cents a gallon, or about 3%. Tom Kloza, global head of energy analysis for OPIS, believes that OPEC’s decision will reawaken the inflation monster and significantly impact gas prices in the US. He estimates that the national average for US gas prices could reach $3.80 to $3.90, especially if there are any disruptions in production along the Gulf Coast due to hurricanes or other storms.

However, Kloza reassures that gas prices are unlikely to reach the record levels seen in 2022. The US has plans for additional releases from the Strategic Petroleum Reserve, and there has been an increase in both US oil production and refining capacity. Nonetheless, the 1 million barrel per day cut in oil production by OPEC+ will not be easily compensated for.

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