The surprise move by New York (CNN) OPEC and its allies 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 from May through the end of the year. The news pushed both Brent crude futures, the global oil benchmark, and WTI, the US benchmark, up about 6% on Monday trading.
The production cut announcement also had an immediate impact on gasoline futures, which are being passed on to US drivers much faster than the rise in oil prices. RBOB, the most closely watched wholesale price for gasoline, was up about 8 cents a gallon, or about 3%, during morning trade.
“I think OPEC is bringing the inflation monster back to life,” said Tom Kloza, global head of energy analysis at OPIS, which tracks gas prices for AAA. “The White House must be shocked and pissed at big times. It certainly changes the calculus for a while.”
According to AAA, the national average of US gas prices was $3.51 on Monday. Kloza said he could see it rising to $3.80-$3.90 in a relatively short period of time thanks to OPEC’s move.
“We’re not going back to $5 a gallon. I don’t think we’re going to even go to $4,” he said. But he said by the end of the summer, US drivers could be back above last year’s prices, especially if a hurricane or other storms affect production along the Gulf Coast.
The average regular gas price in the US was $4.19 a gallon a year ago after Russia invaded Ukraine and disrupted global energy markets. Prices finally hit a record $5.02 a gallon on June 14 before slowly but steadily declining over a period of more than three months in which the average price fell every day. The decline was due in part to the release of oil from the US Strategic Petroleum Reserve and in part to concerns that a US or global recession could ensue, which could reduce demand for gasoline.
Even at $3.51, US gas prices were just below the $3.53 average on February 23, 2022, the day before the Russian invasion of Ukraine.
Kloza said one thing keeping prices from anywhere near 2022 record levels is that the US is planning additional releases from the SPR and both US oil production and refining capacity have increased. But an OPEC+ cut of 1 million barrels a day will not be easy to catch up.
“They have the opportunity to cut production and they seem motivated to do so,” he said.