(Trends Wide) — The surprise decision by OPEC and its allies to slash oil production will soon be felt at America’s gas pumps.
The group known as OPEC+ announced this Sunday that it would reduce oil production by more than 1.6 million barrels per day from May until the end of the year. The news sent both Brent crude futures, the global oil benchmark, and WTI, the US benchmark, rising around 6% in trading on Monday.
The production cut announcement also had an immediate impact on gasoline futures, which will pass on to American drivers much faster than rising oil prices. The RBOB, the most closely watched wholesale gasoline price, rose about 8 cents a gallon, or about 3%, in morning trading.
“I think OPEC is waking up the inflation monster,” said Tom Kloza, global head of energy analysis at OPIS, which tracks gas prices for AAA. “The White House has to be shocked and very angry. It certainly upsets the calculus for a while.”
The national average for gasoline prices in the US stood at US$3.51 this Monday, according to AAA. Kloza said the price could rise from $3.80 to $3.90 in a relatively short time thanks to the OPEC move.
“We are not going back to $5 a gallon. I don’t think we’ll get to $4,” she said. But he said that by the end of the summer, US drivers could be back above year-ago prices, especially if there is a hurricane or other storms that affect production along the Gulf Coast.
The average price of regular gasoline in the US a year ago was $4.19 a gallon after Russia’s invasion of Ukraine and the disruption it caused to global energy markets. Prices finally hit a record high of $5.02 a gallon on June 14, before beginning a slow but steady decline over the course of more than three months during which the average price fell every day. The decline was partly driven by the release of oil from the US Strategic Petroleum Reserve and partly by concerns that there could be a US or global recession that would reduce demand for gasoline.
Even at $3.51, US gasoline prices were just below the $3.53 average on February 23, 2022, the day before Russia’s invasion of Ukraine.
Kloza said that one thing keeping prices from getting anywhere near record 2022 levels is that the US plans additional releases of SPR, and that US oil production and refining capacity have increased. But a cut of one million barrels per day of oil by OPEC+ will not be easy to compensate.
“They have the ability to cut production and seem motivated to do so,” he said.
