New York
cnn
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The surprise move by OPEC and its allies to cut oil production will soon be felt at gas pumps in the United States.
The group known as OPEC+ announced on Sunday that it would cut oil production by more than 1.6 million barrels per day starting in May and continuing through the end of the year. The news sent Brent crude futures, the global oil benchmark, and WTI, the U.S. benchmark, up about 6% in Monday trading.
The production cut announcement also had an immediate impact on gasoline futures, which will pass to American drivers much more quickly than rising oil prices. The RBOB, the most closely watched wholesale gasoline price, rose about 8 cents a gallon, or about 3%, in morning trading.
“I think OPEC is reawakening the inflation monster,” said Tom Kloza, global head of energy analysis at OPIS, which tracks gas prices for AAA. “The White House has to be shocked and very angry. It certainly upsets the calculations for a while.”
The national average for gasoline prices in the United States stood at $3.51 on Monday, according to AAA. Kloza said he could see the price rising to between $3.80 and $3.90 in a relatively short time thanks to OPEC’s move.
“We’re not going back to $5 a gallon. I don’t think we’re even going to get to $4,” he said. But he said that by the end of the summer, American drivers could be back above year-ago prices, especially if there is a hurricane or other storms that affect production along the Gulf Coast.
The average price of regular gas in the United States a year ago was $4.19 a gallon in the wake of the Russian invasion of Ukraine and the disruption it caused to global energy markets. Prices finally hit a record high of $5.02 a gallon on June 14, before beginning a slow but steady decline over more than three months during which the average price fell every day. The drop was driven partly by the release of oil from the US Strategic Petroleum Reserve and partly by concerns that there could be a US or global recession that would reduce demand for gasoline.
Even at $3.51, U.S. gasoline prices were just below the average of $3.53 on February 23, 2022, the day before the Russian invasion of Ukraine.
Kloza said one thing keeping prices from approaching 2022 record levels is that the United States plans additional releases from the SPR, and that U.S. oil production and refining capacity have increased. But a cut of 1 million barrels a day of oil by OPEC+ will not be easy to compensate.
“They have the ability to reduce production and seem motivated to do so,” he said.
