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The recent surprise decision by OPEC and its allies to reduce oil production is set to impact US gas prices in the near future. OPEC+, the coalition of oil-producing countries, announced a cut of over 1.6 million barrels a day starting in May and lasting until the end of the year. This news caused Brent crude futures and WTI to surge by approximately 6% in Monday’s trading session.
This production cut is expected to have an immediate effect on gasoline futures, leading to a rapid increase in prices at the pump for US drivers. Wholesale gasoline prices spiked by about 8 cents per gallon, translating to a 3% increase in morning trading.
“I think OPEC is reawakening the inflation monster,” said Tom Kloza, global head of energy analysis for OPIS, which monitors gas prices for AAA. With the national average for US gas prices at $3.51 on Monday, Kloza forecasts a potential rise to $3.80-$3.90 in the near future, citing the impact of OPEC’s decision.
While Kloza does not anticipate gas prices reaching the highs of 2022, he believes US drivers could soon surpass year-ago prices, especially if weather events like hurricanes disrupt production along the Gulf Coast. Factors like additional releases from the US Strategic Petroleum Reserve and increased US oil production and refining capacity may help stabilize prices.
However, compensating for a reduction of 1 million barrels a day by OPEC+ will pose challenges. Kloza noted the group’s commitment to production cuts, underscoring the importance of alternative solutions to manage escalating gas prices.
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