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The surprise decision by OPEC and its allies to cut oil production will soon be felt at American gas pumps.
OPEC+ said Sunday it would cut oil production by more than 1.6 million barrels per day from May through the end of the year, sending global benchmark Brent crude futures and U.S. benchmark WTI futures up about 6% on Monday.
The production cut announcement also had an immediate impact on gasoline futures, which will trickle down to U.S. drivers much faster than higher oil prices. The RBOB, the most closely watched wholesale gasoline price, was up 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 for OPIS, which tracks gas prices for AAA. “The White House should be shocked and furious. It certainly changes the calculus for a while.”
According to AAA, the average price of gasoline in the United States on Monday was $3.51. Mr. Kloza said it could reach $3.80 to $3.90 in a relatively short period of time thanks to the OPEC decision.
“We’re not going to get back to $5 a gallon. I don’t even think we’re going to get to $4,” he said. But he added that by the end of the summer, U.S. motorists’ prices could be higher than they were a year ago, especially if a hurricane or other storms affect production along the Gulf Coast.
A year ago, the average price of regular gasoline in the United States was $4.19 a gallon, following Russia’s invasion of Ukraine and the resulting disruptions to global energy markets. Prices eventually hit a record low of $5.02 a gallon on June 14, before beginning a slow but steady decline over more than three months, during which the average price fell every day. The decline was partly due to the release of oil from the U.S. Strategic Petroleum Reserve, and partly due to fears that a U.S. or global recession would reduce demand for gasoline.
Even at $3.51, U.S. gas prices were just below the $3.53 average of February 23, 2022, the day before Russia invaded Ukraine.
According to Kloza, one factor keeping prices from reaching 2022’s record levels is the fact that the U.S. is planning further SPR releases, and that U.S. oil production and refining capacity are both rising. But a 1 million barrel per day cut in oil production by OPEC+ won’t be easy to make up for.
“They have the capacity to reduce production and they seem motivated to do so,” he said.
cnn
