Implications of OPEC’s unexpected oil reduction on gas prices

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In recent news, OPEC and its allies have made a surprising decision to slash oil production, and the effects of this will soon be felt at US gas pumps. The group, known as OPEC+, announced a cut in oil production of over 1.6 million barrels a day, starting in May and lasting until the end of the year. As a result, both Brent crude futures, the global oil benchmark, and WTI, the US benchmark, rose by approximately 6% during Monday’s trading.

Interestingly, the impact of this production cut on gasoline futures will be passed onto US drivers much more quickly than the spike in oil prices. In morning trading, RBOB, the most closely monitored wholesale gasoline price, saw an increase of about 8 cents per gallon, or around 3%.

Tom Kloza, the global head of energy analysis for OPIS, voiced his thoughts on the matter, stating, “I think OPEC is reawakening the inflation monster. The White House has to be shocked and major-time pissed. It certainly alters the calculus for a while.”

Currently, the national average for US gas prices stands at $3.51, according to AAA. However, due to the recent actions taken by OPEC, Kloza predicts that this could rise to $3.80 to $3.90 in the near future.

While Kloza does not believe that gas prices will reach $5 a gallon again, he suggests that US drivers could see prices surpassing those of the previous year by the end of the summer. This is especially possible if there are any hurricanes or storms that impact production along the Gulf Coast.

In 2022, following Russia’s invasion of Ukraine, the average US regular gas price reached $4.19 a gallon. It eventually peaked at a record $5.02 a gallon on June 14 before starting a gradual decline over the course of three months. Factors contributing to this decline included the release of oil from the US Strategic Petroleum Reserve and concerns of a potential recession affecting gasoline demand.

It is important to note that even at the current average gas price of $3.51, prices are already near the average of $3.53 on February 23, 2022, which was the day before Russia’s invasion of Ukraine.

While additional releases from the US Strategic Petroleum Reserve and increased oil production and refining capacity in the US may help prevent prices from reaching the record levels of 2022, compensating for a 1-million-barrel-a-day cut in oil production by OPEC+ will not be an easy task.

Kloza comments, “They have the ability to cut production and they seem motivated to do so.”

At our financial services company, we understand the potential impact these changes in the energy market can have on small businesses and gig workers. Our fast and easy merchant cash advances aim to provide a simple financing solution, regardless of credit challenges.