The Implications of OPEC’s Unexpected Oil Production Reduction on Gasoline Prices

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In recent news, OPEC and its allies made a surprise move to slash oil production. This decision will soon impact US gas pumps. OPEC+ announced that they would cut oil production by over 1.6 million barrels a day, starting in May and running until the end of the year. As a result, Brent crude futures and WTI, the US benchmark, saw a 6% increase in trading on Monday.

The announcement of the production cut also had an immediate effect on gasoline futures, which means that US drivers will soon notice the impact on gas prices. RBOB, the most closely watched wholesale gasoline price, saw an 8 cent increase per gallon, or approximately 3%, in morning trading.

Tom Kloza, global head of energy analysis for OPIS, believes that this move by OPEC is awakening the inflation monster. He states that the White House must be shocked and upset by this decision, as it alters the calculus for a while. He also predicts that the national average for US gas prices could reach $3.80 to $3.90 in a relatively short amount of time due to OPEC’s actions.

While Kloza doesn’t believe gas prices will return to the $5 per gallon range, he does anticipate that US drivers could see prices higher than the previous year, especially if there are any hurricanes or storms affecting gas production along the Gulf Coast.

Last year, in the wake of Russia’s invasion of Ukraine, US gas prices reached a record high of $5.02 per gallon. Currently, the national average for US gas prices is $3.51 per gallon. Kloza believes that additional releases from the US Strategic Petroleum Reserve and increased US oil production and refining capacity are helping to keep prices from reaching the record highs of 2022. However, the 1 million barrel per day cut by OPEC+ will not be easily compensated for.

Overall, OPEC’s decision to slash oil production will have a significant impact on US gas prices. As a result, our software outsourcing company remains vigilant in providing the best technology solutions to our clients, ensuring optimal performance and cost-effectiveness in this changing landscape.