The OPEC+ plus announcement Sunday that it would cut production by 1.6 million barrels per day led to an immediate increase in gasoline futures, which will be passed on to consumers quickly.
Wholesale gasoline prices as reflected in the RBOB were up 3.14% at 11:55 a.m. EST on Monday. Meanwhile, AAA showed the national average price per gallon at the pump as $3.506, up from $3.439 a week ago. “I think OPEC is reawakening the inflation monster,” said Tom Kloza, global head of energy analysis for OPIS, which tracks gas prices for AAA, as saying.
“The White House has to be shocked and major-time pissed. It certainly alters the calculus for a while.”
Kloza warns that prices at the pump could run up to $3.90 in a short time frame, though he dismissed fears that prices could spike beyond in the medium-term. Just last week, ahead of the OPEC+ announcement, gasoline prices were starting to trend higher, with analysts blaming high demand and low supply. For the week ending March 24, gas reserves fell to 226.7 million barrels, from 229.6 million barrels, while there was a narrow increase in demand, according to the Energy Information Administration (EIA). At the time, AAA said “we may be seeing a return to seasonal trends in demand with warmer weather and longer days, but waffling oil prices could mitigate any increase at the pump for now.”
Oil prices could continue to march higher, with the International Energy Agency warning that OPEC+ cuts could add fuel to the inflationary fires. Various analysts, in the meantime, warn that oil could even reach $100 by June, putting further pressure on consumers in the summer driving season.
“The new cuts are underpinning that the OPEC+ group is intact and that Russia is still an integral and important part of the group,” SEB analyst Bjarne Schieldrop said, as reported by Reuters.
Fitch: OPEC+ output cuts may lead to market deficit in H2
Fitch Ratings said on Tuesday that it expects the latest production cut agreement by OPEC and its allies to support crude prices in the short term, but warned it could lead to the market switching into deficit in the second half of the year. “The decision on production cuts increases the likelihood of the market switching into deficit this year as demand will increase by 2MMbpd in 2023, according to the US EIA’s estimates, mostly because of China reopening, which will account for about half of demand growth,” the ratings agency noted. Fitch added it still sees Brent crude averaging $85 per barrel this year and declining from next year but now believes there is “a greater upside to our oil short-term price assumption.” Over the weekend, OPEC+ unexpectedly agreed to cut output by almost 1.2 million barrels per day from May until the end of the year, causing crude futures to skyrocket.
IEA warns OPEC+ output cut will push prices higher
The International Energy Agency (IEA) warned on Monday that the surprising production output cut by the OPEC+ countries will only further increase crude prices amid “strong inflationary pressures.” The agency had previously predicted that the world’s oil markets would start to tighten in the second half of 2023, with the possibility of a sizable supply shortfall. “The new OPEC+ cuts risk exacerbating those strains,” the IEA said in the statement, warning that the decision will mostly affect “vulnerable” customers around the world. The United Arab Emirates, Kuwait, Oman, Iraq, Kazakhstan and Algeria joined Saudi Arabia in the decision to lower oil production.