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The impact of OPEC and its allies’ surprise move to cut oil production will soon be felt at US gas pumps.
The group, known as OPEC+, announced on Sunday that it would cut oil production by more than 1.6 million barrels a day starting in May and continuing through the end of the year. The news sent both Brent crude futures, the global oil benchmark, and WTI, the U.S. benchmark, up about 6% in Monday trading.
The announcement of production cuts also had an immediate impact on gasoline futures, which would hit American drivers much faster than rising oil prices. The RBOB, the most closely tracked wholesale gasoline price, was up about 8 cents a gallon, or about 3%, in morning trading.
“I think OPEC is reawakening the inflation monster,” said Tom Kloza, global head of energy analysis for OPIS, which tracks gas prices for AAA. “The White House is going to be shocked and angry for quite some time. It certainly changes the calculus for a while.”
The national average for U.S. gas prices on Monday was $3.51, according to AAA. Kloza said he could see it rising to $3.80 to $3.90 in a relatively short period of time due to OPEC’s move.
“We’re not going to go back to $5 a gallon. I don’t think we’re even going to go to $4,” he said. But he said U.S. drivers could be above year-ago prices by the end of the summer, especially if hurricanes or other storms on the Gulf Coast impact production.
The average US regular gas price was $4.19 a gallon a year ago, in the wake of Russia’s invasion of Ukraine and disruption to world energy markets. Prices eventually reached a record $5.02 per gallon on June 14, before beginning a slow but steady decline over more than three months, during which the average price fell every day. This decline was partly due to the release of oil from the US Strategic Petroleum Reserve, and partly due to concerns that there could be a US or global recession which reduced demand for gasoline.
Even at $3.51, US gas prices were still well below the average of $3.53 on February 23, 2022, the day before Russia’s invasion of Ukraine.
Kloza said the only thing keeping prices from reaching near record highs in 2022 is that the US is planning additional releases from the SPR, and US oil production and refining capacity are both increasing. But offsetting the OPEC+ oil cut of 1 million barrels per day will not be easy.
“They have the ability to cut production and they appear motivated to do so,” he said.