OPEC and its allies surprised the market with a significant move to reduce oil production, and this development will have an impact on gas prices in the US. This update from the group, known as OPEC+, involves cutting oil production by more than 1.6 million barrels a day starting in May until the end of the year. As a result, Brent crude futures, the global oil benchmark, and WTI, the US benchmark, both saw a spike of about 6% in trading on Monday.
This decision will not only affect oil prices but is also expected to escalate gasoline prices for US drivers in the near future. Gasoline futures, especially the widely observed wholesale gasoline price known as RBOB, have already surged by approximately 8 cents per gallon, indicating a 3% increase in morning trading.
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The national average for a gallon of gas in the US reached $3.51 on Monday, and experts predict it could rise to $3.80 to $3.90 due to OPEC’s recent action. While it is unlikely to hit $5 a gallon, drivers may see prices surpassing previous year levels by the end of the summer. Factors such as hurricanes or other storms affecting production in the Gulf Coast region could further impact the price.
Last year, during Russia’s invasion of Ukraine, gas prices hit $4.19 a gallon, eventually reaching a record $5.02 a gallon on June 14, 2022. Following a gradual decline, the average price dropped below the $3.53 level observed on February 23, 2022, a day before the invasion.
Despite measures such as releasing oil from the US Strategic Petroleum Reserve and increased oil production and refining capacity in the US, the reduction of 1 million barrels a day by OPEC+ poses a challenge. It is evident that their commitment to production cuts will have a lasting effect on the global energy market, making it difficult to compensate for the reduced output.
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