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In recent news, OPEC and its allies have made a surprising decision to slash oil production by over 1.6 million barrels a day, starting in May and running through the end of the year. This announcement has already had an impact on gas prices in the US.
As a result of the production cut, both Brent crude futures and WTI, the US benchmark, saw a 6% increase in trading on Monday. Additionally, gasoline futures also rose, which means US drivers can expect an increase in gas prices sooner rather than later. The most closely watched wholesale gasoline price, RBOB, went up by about 8 cents a gallon or approximately 3% in morning trading.
Tom Kloza, the global head of energy analysis for OPIS, believes that OPEC’s decision will awaken the inflation monster. He suggests that the move by OPEC will likely lead to US gas prices rising to around $3.80 to $3.90 in a short period of time.
While Kloza doesn’t anticipate gas prices reaching the record levels seen in 2022, he does warn that US drivers could see prices above year-earlier levels by the end of the summer, especially if there are any hurricanes or storms affecting production along the Gulf Coast.
It’s worth noting that the average US regular gas price stood at $4.19 a gallon a year ago due to global energy market disruptions caused by Russia’s invasion of Ukraine. However, prices gradually declined over the following months. Currently, gas prices are just below the average price seen on February 23, 2022, the day before Russia’s invasion.
Although the US has plans to release oil from the Strategic Petroleum Reserve and has increased oil production and refining capacity, it will be challenging to make up for the 1 million barrel per day cut in production by OPEC+. Kloza believes that OPEC+ is motivated to cut production and will make the necessary adjustments.
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