Here's what OPEC's shock oil production cuts mean for U.S. gas prices
Oil markets shuddered after a surprise announcement this weekend that Saudi Arabia and other oil-producing countries would cut their output of crude oil, potentially pushing up gas prices just as millions of Americans hit the road this summer.
With the price of Brent crude, the international oil standard, jumping about 6% to $85 a barrel on Monday, motorists should expect prices at the pump to rise between 5 cents and 15 cents per gallon within the next two weeks, analysts told CBS MoneyWatch. By summer, the average national price for regular gas is likely to be around $4 a gallon.
If the price of crude stays at or above $80 a barrel, "we could see the national average price move in the 8-to-12 cent range, and we haven't seen it yet," AAA spokesperson Andrew Grossman said.
The cost of crude accounts for about half of the overall price of gas, according to the Energy Department. From Sunday to Monday, average gas prices stayed steady at $3.50 a gallon, according to AAA, but Grossman said prices could increase by 5 or 10 cents by the end of the week.
For drivers, "the initial effect will be limited to a ballpark of 5-15c/gal," Patrick De Haan, head of petroleum analysis at GasBuddy, said on Twitter.
Gas prices soared to an average of $5.02 in June of 2022, stoked by the war in Ukraine, with prices at the pump in California soaring well above $6. But prices fell steadily in the ensuing months as global crude costs sank, shell-shocked motorists cut back on driving and U.S. refineries upped their oil production.
Seasonal effects
Grossman said gas prices this time of year typically hover between $2 and $3.50 per gallon. That puts the current national average at the high end of the typical range, which he attributes to the higher driving demand because of the unusually warm spring in many parts of the country.
Gas prices usually rise about 30 cents a gallon between spring and summer, Kevin Book, managing director of Clearview Energy Partners, told CBS News. That's because gas sold in summer is required to have a less polluting, and more expensive, formulation, and Americans drive the most when it's warm.
However, Book and other analysts cautioned that OPEC's announcement could turn out less impactful than feared. Last fall, the oil cartel announced a production cut of 2 million barrels per day, but the actual cut turned out to be just half that.
"This is just an announcement," AAA's Grossman added. "Will the size of the cut really be a million [barrels per day] plus or will it be something less? That's entirely possible. They have a month to figure out what they really want to do."
Pricing in the effects of more expensive crude oil and a seasonal 30-cent swing could bring the national average gas price to roughly $3.95 a gallon by the summer. Whether prices crack $4 also depends on how much Americans drive, and for now the trends in this area are pointing lower.
"Right now, U.S. gasoline demand is down 4.5 % from 2019 levels, but diesel demand is down 13%," Troy Vincent, senior market analyst at DTN, told CBS MoneyWatch.
That's in line with most economists' expectation that the U.S. is likely to enter a mild recession later this year.
"If you're assuming demand [for gasoline] doesn't change but supply now does, then it means higher price — but I don't think it's that simple," he said. "You can't look at the balance sheet without looking at the demand side as well. Demand has been weak for refined fuels and is likely to get worse."