The production cuts alone could increase U.S. gasoline prices by 26 cents a gallon, in addition to the usual increases that occur when refineries change gasoline blends during the summer driving season, said Kevin Book, managing director of Clearview Energy Partners LLC. The Energy Department calculates the seasonal increase to average 32 cents a gallon, the book said.
So the average U.S. price is now $3.50 per gallon of regular, according to AAA, which means more than $4 a gallon of gasoline in the summer.
However, the book said there are many complicating variables in oil and gas prices. The size of each country’s production cut depends on the base production number it uses, so the cut may not be 1.15 million. The cuts could take much of the year to take effect. If the US enters a recession due to a banking crisis, demand will decrease. But this may increase during summer as more people travel.
The book said that even if the production cut is only 1% of the roughly 100 million barrels of oil the world uses per day, the impact on prices could be large.
“It’s a big deal with the way oil prices work,” he said. “You’re in a relatively balanced market. You take a small amount, and depending on what the demand is, you can get a very significant price response.
Saudi Arabia announced the largest cut among OPEC members at 500,000 barrels per day. The cuts are in addition to cuts announced last October that angered the Biden administration.
The Saudi Energy Ministry described the move as a “precautionary measure” aimed at stabilizing the oil market. That represents a cut of less than 5% to Saudi Arabia’s average production of 11.5 million barrels in 2022.
Iraq said it would cut production by 211,000 barrels a day, the United Arab Emirates by 144,000, Kuwait by 128,000, Kazakhstan by 78,000, Algeria by 48,000 and Oman by 40,000. The state media of each country published these announcements.
Meanwhile, Russian Deputy Prime Minister Alexander Novak said Moscow would extend the 500,000 voluntary reduction until the end of the year, according to comments by state news agency Tass. Russia announced unilateral cuts in February after Western countries imposed price caps.
All oil exporting countries are members of the OPEC+ group, which includes the original Organization of Petroleum Exporting Countries and Russia and other major producers. There was no immediate statement from OPEC.
The cuts announced in October – about 2 million barrels per day – come ahead of the US mid-term elections, in which rising prices have been a key issue. President Joe Biden vowed at the time that there would be “consequences” and Democratic lawmakers called for a freeze on cooperation with the Saudis.
Both the US and Saudi Arabia have denied any political motive in the dispute.
Since those cuts, oil prices have fallen. Brent crude, the global benchmark, was at $80 a barrel late last week, down from around $95 in early October, when earlier cuts were agreed.