A Meeting in Vienna
Earlier this week, the Organization of the Petroleum Exporting Countries and its allies, including Russia, gathered in Vienna. The group agreed to cut oil production by 2 million barrels per day. This will begin next month, and cause renewed volatility in oil prices, which have wavered throughout 2022.
OPEC+ has decided to take this step in a bid to force down supply, which will cause prices to rise. The organization has observed the price of international benchmark Brent crude fall from a June high of $120 per barrel to around $93 per barrel as of mid-week.
In response, the Biden administration announced it will release another 10 million barrels of oil from the US Strategic Petroleum Reserve into the market next month. In theory, upping supply in this way can combat the move by OPEC+.
What Happens Next
Following significant declines over the past months, the price of crude oil has been inching up recently. According to AAA, the average price for a gallon of regular gas checked in at $3.779 a month ago. Now, it’s $3.867 per gallon.
This can be partially attributed to recent issues with refineries and related maintenance, in both the Great Lakes area and on the West Coast. Analysts suggest that once those issues are resolved, prices could begin to fall again. But the amount by which they decline will be limited, due to the move from OPEC+. That’s because the 2 million barrels per day cut will vastly reduce the world’s supply, forcing prices higher.
Prices at the Pump
While the Biden administration announced plans to release more oil from the national reserve, its options are limited. Getting domestic oil production ramped up is a difficult prospect. That’s because oil producers are dealing with the same problems other employers face: supply chain disruptions and labor shortages.
What’s more, many investors are pressuring companies not to ramp up production too quickly. The concern is that, by producing too much supply, prices will fall rapidly and could potentially hurt those same companies.
As for what consumers can expect, it’s likely gasoline prices will rise as oil supply shrinks. That said, the recessionary concerns plaguing the global economy are also a factor, as a protracted slowdown would reduce demand for oil. Analysis from GasBuddy suggests there will be regional differences, with prices at the pump expected to rise most significantly in the Northeast, Southeast, Gulf Coast, and along the East Coast in general. Demand for gasoline does tend to fall in the winter, so as temperatures drop, consider it an icy silver lining for motorists.
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