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The recent move by OPEC and its allies to slash oil production will have a significant impact on US gas prices. OPEC+ announced a cut of more than 1.6 million barrels a day starting in May, which will continue until the end of the year. As a result, both Brent crude futures and WTI experienced a 6% increase in trading.
While the spike in oil prices will take time to reach consumers, the announcement has already affected gasoline futures. Wholesale gasoline prices, such as RBOB, rose by about 8 cents per gallon, or 3%, in morning trading. This increase will soon be felt at US gas pumps.
Tom Kloza, global head of energy analysis for OPIS, believes that OPEC’s decision is reawakening the inflation monster. He stated that the White House is likely shocked and majorly upset by the situation. Kloza predicts that the national average for US gas prices could rise from $3.51 to potentially $3.80 to $3.90 due to OPEC’s actions.
Although he does not expect gas prices to reach $5 a gallon, Kloza suggests that US drivers may experience prices above year-earlier levels by the end of the summer. Additionally, the occurrence of a hurricane or other storms affecting production along the Gulf Coast could further contribute to the increase. It is important to note that the average US regular gas price was $4.19 a gallon in the wake of Russia’s invasion of Ukraine in 2022.
Kloza also acknowledges that the US has additional releases planned from the Strategic Petroleum Reserve and increased oil production and refining capacity. However, replacing the 1 million barrel per day cut by OPEC+ will not be an easy task.
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