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Recently, OPEC and its allies surprised the market with a decision to slash oil production, impacting the prices at US gas pumps. The group OPEC+ declared a cut in oil production by over 1.6 million barrels a day starting in May until the end of the year. This move caused Brent crude futures, the global oil benchmark, and WTI, the US benchmark, to surge around 6% in trading the following day.
Not only did this production cut affect oil prices, but it also had an immediate effect on gasoline futures. This increase in wholesale gasoline price will soon be passed onto US drivers much faster than the rise in oil prices. The wholesale gasoline price RBOB rose about 8 cents a gallon, or approximately 3%, in morning trading.
Tom Kloza, global head of energy analysis for OPIS, commented on the news, saying, “I think OPEC is reawakening the inflation monster. The White House has to be shocked and major-time pissed. It certainly alters the calculus for a while.” The national average for US gas prices on Monday was $3.51 according to AAA, with expectations to rise to $3.80 to $3.90 in a short time frame due to the OPEC decision.
While the prices are not predicted to reach the highs of 2022, such as $5 a gallon, there’s a possibility of reaching year-earlier prices as we head into the summer months. Kloza highlighted that additional releases from the Strategic Petroleum Reserve and increased US oil production and refining capacity could dampen the impact. However, the 1 million barrel per day production cut by OPEC+ will pose challenges in bridging the gap in supply.
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