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OPEC and its allies recently made a surprise announcement to reduce oil production, which will inevitably impact US gas prices. The decision to cut oil production by over 1.6 million barrels a day starting in May through the end of the year has already caused Brent crude futures and WTI to surge by about 6% in trading. This move will trickle down to gasoline prices, with RBOB showing an increase of about 3% in morning trading.
The rapid increase in gasoline prices due to the production cut will likely be felt by US drivers sooner rather than later. Analysts predict that the national average for gas prices, currently at $3.51, could spike to $3.80 to $3.90 in the near future. While this increase is significant, it might not reach the record levels seen in 2022 after the invasion of Ukraine by Russia.
Maintaining lower gas prices amidst the OPEC+ production cut will be challenging, especially as the US continues to rely on additional releases from the Strategic Petroleum Reserve. However, increased US oil production and refining capacity might help soften the blow. Yet, the substantial 1 million barrels a day cut by OPEC+ will pose a significant challenge to offset.
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