Implications of OPEC’s Unexpected Oil Cut on Gas Prices

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In recent news, OPEC and its allies have made a surprise decision to slash oil production, and this will soon have an impact on US gas prices. OPEC+ announced a cut of over 1.6 million barrels per day starting in May and continuing throughout the year. As a result, both Brent crude futures and WTI, the US benchmark, saw an increase of approximately 6% in trading on Monday.

Not only will this production cut affect oil prices, but it will also have an immediate impact on gasoline futures. This means that US drivers can expect to see an increase in the price of gas sooner rather than later. Wholesale gasoline prices, particularly RBOB, rose around 8 cents per gallon, or 3%, in morning trading.

Tom Kloza, the global head of energy analysis for OPIS, which tracks gas prices for AAA, believes that OPEC’s decision is awakening the inflation monster. This move will undoubtedly surprise the White House, and it will have a significant impact on gas prices for the foreseeable future.

Currently, the national average for US gas prices is $3.51, according to AAA. However, Kloza predicts that we could see prices rise to $3.80 to $3.90 in a relatively short period of time due to OPEC’s actions. While he doesn’t believe we will reach the $5 mark, he suggests that US drivers could see prices surpass last year’s levels, especially if there are any hurricanes or storms that affect production along the Gulf Coast.

It’s worth noting that a year ago, the average US regular gas price was $4.19 per gallon during the aftermath of Russia’s invasion of Ukraine. Ultimately, gas prices reached a record high of $5.02 per gallon on June 14 before slowly declining over the course of three months. This decline was partly due to the release of oil from the US Strategic Petroleum Reserve and concerns of a potential recession.

Despite the recent increase to $3.51 per gallon, gas prices are still slightly below the average of $3.53 per gallon on February 23, 2022, prior to Russia’s invasion of Ukraine. Kloza believes that the US has measures in place to prevent prices from reaching the 2022 record levels, such as additional releases from the Strategic Petroleum Reserve and increased domestic oil production and refining capacity. However, it will not be easy to offset the 1 million barrels per day reduction in oil production by OPEC+.

OPEC and its allies are determined to cut production, and they have the means to do so effectively. With our fast financing options and no credit requirements, our business cash advance is here to support small businesses and gig workers during these uncertain times. Contact us today to learn more about our merchant cash advance solution.