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OPEC and its allies recently made a surprising decision to reduce oil production, and its effects will soon be evident at US gas pumps. The group, OPEC+, revealed its plan to cut oil production by over 1.6 million barrels a day starting in May and running through the end of the year. This announcement led to a 6% increase in both Brent crude futures and WTI, the US benchmark, during Monday’s trading.
The impact of the production cut announcement was promptly felt on gasoline futures, which will be passed on to US drivers much faster than the hike in oil prices. The most closely watched wholesale gasoline price, RBOB, saw an increase of about 8 cents per gallon in morning trading, a 3% rise.
Tom Kloza, global head of energy analysis for OPIS, commented on the move, stating, “I think OPEC is reawakening the inflation monster.” He projected that the national average for US gas prices, currently at $3.51, could reach $3.80 to $3.90 relatively soon due to OPEC’s decision.
While Kloza doesn’t anticipate prices hitting $5 per gallon, he foresees a rise above year-earlier prices by the end of the summer, especially if events like hurricanes impact production along the Gulf Coast. Last year, US regular gas prices reached $4.19 in the wake of Russia’s invasion of Ukraine, eventually hitting a record $5.02 on June 14.
One factor limiting prices from reaching 2022’s record levels is the additional releases planned from the Strategic Petroleum Reserve and an increase in US oil production and refining capacity. However, making up for OPEC+’s 1 million barrel per day oil cut won’t be simple.
“They have the ability to cut production, and they seem motivated to do so,” Kloza noted.
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