American motorists will soon feel the pinch as OPEC and its allied oil-producing partners move ahead with plans to curb production to drive up the price of petroleum.
The move is expected to reverse the sharp decline in the price of crude oil which plunged from more than $120 a barrel last June to as little as $80 in recent weeks. With producers signaling they could trim output by as much as 2 million barrels a day, prices have quickly surged, reaching as much as $95 a barrel on some indices Thursday morning.
The impact at the pump also came quickly. American motorists saw prices spike to $5.034 a gallon on a national average for regular unleaded on June 16. That dipped to around $3.60 last month, reported tracking service GasBuddy.com, with some service stations briefly dipping below $3. But the trend reversed course as OPEC signaled cuts could be in order late in September. According to AAA, the national average rose to $3.867 Thursday morning, analysts anticipating even further increases as the scope of OPEC’s move is fully understood. A push past $4 a gallon is widely expected.
Biden administration calls out “shortsighted” move
The reaction from Washington was swift, the Biden administration labeling the move “shortsighted.”
“In light of today’s action, the Biden administration will also consult with Congress on additional tools and authorities to reduce OPEC’s control over energy prices,” the White House said after the cuts were announced.
One possible move could see restrictions on the export of U.S. petroleum products. Congress, meanwhile, is deliberating so-called NOPEC legislation — short for “No Oil Producing and Exporting Cartels.”
It is meant to reduce manufactured oil price spikes and could open up members of OPEC and its allies, also known as OPEC+, to antitrust lawsuits. The measure passed a Senate committee by a vote of 17 to 4 on May 5, suggesting it could win bipartisan support — though previous attempts to pass such anti-trust measures have stalled in Congress for over two decades.
Iowa Republican Sen. Chuck Grassley was one of the sponsors, along with Minnesota Democrat Amy Klobuchar — the latter saying in May, “I believe that free and competitive markets are better for consumers than markets controlled by a cartel of state-owned oil companies … competition is the very basis of our economic system.”
Cuts could be substantial
How much of an impact such legislation could have is a matter of strong debate. But few see anything positive coming from the latest cuts in production with OPEC+ members expected to curb collective output by anywhere from 500,000 to 2 million barrels a day. The group never fully returned production to pre-pandemic levels, member states slashing output by a record 10 million barrels a day when COVID-19 restrictions put the global economy into a tailspin.
As pandemic restrictions eased, demand for gas, diesel and jet fuel, along with other petroleum products soared, sending pump prices well past previous record levels. That fueled inflation worldwide. In turn, the U.S. Federal Reserve has enacted a series of sharp interest rate hikes that even the Fed’s Chairman Jerome Powell has acknowledged could trigger a recession.
Cuts raise further concerns about U.S., global economies
The situation could be further complicated by new increases in oil prices. OPEC Secretary-General Haitham Al Ghais said the goal of the production cuts was to ensure “security (and) stability to the energy markets.”
But quite the opposite may happen, according to some analysts, especially if rising prices and an economic downturn combine to reduce demand for oil. How much higher prices might go at the pump is far from certain, but something north of $4 a gallon seems certain, experts warned, especially if crude oil continues marching past the $100-a-barrel mark.