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The recent move by OPEC and its allies to reduce oil production will undoubtedly impact US gas prices. OPEC+ announced a cut in oil production by over 1.6 million barrels per day from May through the end of the year. This decision led to a 6% increase in both Brent crude futures and WTI, the US benchmark, in trading on Monday.
Gasoline futures also saw an immediate effect, with RBOB, the wholesale gasoline price, rising by about 8 cents a gallon in morning trading. As a result, US drivers should expect a quick increase in gas prices due to this production cut.
Tom Kloza, global head of energy analysis for OPIS, mentioned that the move by OPEC could reignite inflation concerns. He predicted that the national average for US gas prices, currently at $3.51, could soar to $3.80 to $3.90 shortly. While reaching $5 a gallon is unlikely, a rise above year-earlier prices is expected, especially if external factors like hurricanes affect production along the Gulf Coast.
Despite the potential increase in gas prices, the current US gas prices are slightly below the average on the day before Russia’s invasion of Ukraine in 2022. Kloza highlighted that additional releases from the US Strategic Petroleum Reserve and increased US oil production might help control prices. However, compensating for a 1-million-barrels-a-day reduction in OPEC+ oil production could prove challenging.
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