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In recent news, OPEC and its allies have made a surprise announcement to slash oil production by over 1.6 million barrels a day, starting in May and lasting until the end of the year. This decision has already impacted oil prices, with both Brent crude futures and WTI experiencing a 6% increase in trading.
The effects of this production cut will also be felt at US gas pumps, where gasoline futures have already shown an 8 cent increase per gallon in morning trading. This increase will be passed onto US drivers much faster than the rise in oil prices.
Tom Kloza, global head of energy analysis for OPIS, believes that OPEC has unleashed the inflation monster with this decision. He suggests that the national average for US gas prices could reach $3.80 to $3.90 in a relatively short period of time, thanks to OPEC’s actions.
While Kloza doesn’t expect gas prices to reach the record levels of $5 a gallon, he does anticipate prices going above last year’s levels. Factors such as hurricanes or other storms impacting production along the Gulf Coast could contribute to this increase.
It’s important to note that the average US regular gas price a year ago was $4.19 a gallon, following Russia’s invasion of Ukraine and the resulting disruption in energy markets. The price eventually reached a record $5.02 a gallon on June 14, but gradually declined over the course of three months. This decline was partly due to the release of oil from the US Strategic Petroleum Reserve and concerns about a potential recession.
Currently, US gas prices stand at $3.51, just below the average of $3.53 on Feb. 23, 2022, the day before Russia’s invasion of Ukraine. Kloza believes that additional releases from the US Strategic Petroleum Reserve, as well as increased US oil production and refining capacity, will prevent prices from reaching record levels. However, he acknowledges that a 1 million barrel a day cut in oil production by OPEC+ will not be easy to compensate for.
At our financial services company, we understand the impact that these changes in oil prices can have on small businesses and gig workers. Our merchant cash advance (MCA) provides a fast, no credit solution for those in need of business cash advance. We are here to help navigate the financial challenges that may arise from fluctuations in the energy market. Contact us today to learn more about our MCA options and how we can assist you.