Surprise crude oil production cuts from Saudi Arabia and other oil-rich countries shouldn’t produce worries of skyrocketing gas costs for U.S. drivers still smarting from last year’s pump price shocks, according to fuel industry experts.
At a time when gas prices are already increasing because of rising seasonal demand, the slashed crude oil output that Saudi Arabia announced Sunday will translate into higher prices, they say. But compared to last year — when energy markets were absorbing the initial impact of Russia’s invasion of Ukraine — the altitude on those gas price increases may not feel so steep.
On Monday, the national average for a gallon of gas was $3.50, according to AAA. That’s around 10 cents more than a month ago, but almost 70 cents less than the $4.19 average cost one year ago.
The effects of decreased oil production could translate into initial price increases of up to 15 cents per gallon, according to two different energy sector watchers.
There’s Patrick De Haan, head of petroleum analysis at GasBuddy.
At OPIS, an outlet focused on energy sector news and analytics, Chief Oil Analyst Denton Cinquegrana said he was previously expecting summer gas prices to average around $3.60.
“This move probably boosts that by about 10 – 15 cents to about $3.70-3.75/gal.” Cinquegrana told MarketWatch.
OPIS is owned by Dow Jones, which also owns MarketWatch.
It’s possible for gas price averages to hit around $3.60 in the next week or so, he said. The other 10 to 15 cents might filter into retail pump prices later this month or in early May, according to Cinquegrana.
The surprise move came from Saudi Arabia and other members of OPEC+, the Organization of the Petroleum Exporting Countries and allies, including Russia. In Saudi Arabia, officials were reportedly “irritated” by recent remarks from U.S. Energy Secretary Jennifer Granholm.
After the Biden administration tapped the country’s strategic petroleum reserve to combat last year’s high gas costs, Granholm said it will difficult to restock the reserve.
By May, more than 1 million barrels of oil a day will be slashed from output in the global energy markets. That’s in addition to OPEC+ production cuts announced last fall.
In cost breakdowns for a gallon of gas, the price of crude oil is responsible for more than half the price tag, according to the U.S. Energy Information Administration.
In Monday morning trading, the price of West Texas Intermediate crude for May delivery jumped 6% to just over $80 on the New York Mercantile Exchange.
For context, when gas prices were breaking records last year, the costs of West Texas Intermediate crude were in the triple digits. While retail prices surged in early March 2022, West Texas Intermediate crude briefly traded for more than $130 during the trading day on March 7, 2022.
The national average for a gallon of gas hit a record $5.01 in mid-June, according to AAA. In the current context, Cinquegrana doesn’t see a return to $5 gas averages, he said. Gas prices vary across the nation. California drivers are paying $4.80 on average while Mississippi drivers are paying $3.02 per gallon.
Even if price increases are not as sharp as last year, hot inflation is retreating slowly. So any extra costs are unwelcome to millions of American drivers who are living their lives and more frequently commuting to the office.
Like last year, oil prices are poised to increase, said AAA spokesman Devin Gladden.
But the economy’s background noise right now could dampen the impact as downturn worries keep sticking around, he added. Furthermore, there can be discrepancies in the announced production reductions and the amounts that are actually reduced, Gladden said.
“If recessionary concerns persist in the market, oil price increases may be limited due to the market believing lower oil demand will lead to lower prices this year,” he said.
On Monday, energy sector stocks and related exchange traded funds were climbing after the production cut news. In early afternoon trading, the Dow Jones Industrial Average DJIA,