OPEC Production Cut Sends Gas Prices Upward — for Now
CARS.COM — Fasten your seat belts, gas prices could be in for a bumpy ride. The Organization of Petroleum Exporting Countries and other oil-producing nations agreed Wednesday to cut oil production by 3.5 percent starting in January. It was the first production cut by OPEC in eight years, and the news quickly sent oil prices higher.
Related: EPA Moves to Uphold High Fuel Economy Standards
U.S. crude jumped 10 percent Wednesday to more than $49 a barrel. Higher oil prices would cause pump prices in the U.S. to rise because crude oil accounts for nearly half the cost of a gallon of gasoline, though any effects from oil price fluctuations usually take a week or longer to trickle down to consumers.
The national average for regular gas was $2.15 a gallon on Thursday, according to the AAA Daily Fuel Gauge Report, 2 cents higher than a week ago.
Though OPEC’s decision jolted global oil markets, some analysts were skeptical whether the organization’s members and nonmembers, such as Russia — the world’s second largest producer — will stick to the agreement for long. If prices rise, oil countries may break their agreements to make up for the depressed prices of the last two years. Countries such as Russia, Saudi Arabia, Iran and Venezuela depend heavily on oil revenue to fund their governments and sustain their economies.
If the production cut succeeds and drives up the price of oil, that would encourage North American oil shale producers to resume drilling and complete unfinished wells. That could increase the global supply enough to offset OPEC’s cuts and likely cause oil prices to drop. North American shale producers have largely been on the sidelines the past two years because a glut of oil globally, and low prices made it unprofitable to drill.
“If higher prices bring higher output, prices will not remain up for long,” Jim Krane CQ, a Middle East energy analyst at Rice University, told the New York Times. “It won’t be long before we’re back where we started.”
Gas prices had been on a downward trend in the U.S. Regular was 6 cents cheaper on Thursday than a month ago and 10 cents cheaper than in early October. The national average for premium gas of $2.67 a gallon was 5 cents cheaper than a month ago.
Diesel fuel, which typically gets more expensive this time of year, was 3 cents higher than a month ago at $2.39. During the cold months some of the oil used to make diesel fuel is diverted to making home heating oil, and the higher demand drives up the price.
Compared with a year ago, though, diesel was 2 cents cheaper but regular was 11 cents higher, and premium 13 cents higher. Pump prices were on a sustained slide a year ago, and the national average for regular gas dropped below $2 a gallon by Christmas.
OPEC’s decision to reduce production has lowered expectations that the national average will fall that low this year, but gas was available for less than $2 a gallon in several states. Missouri had the lowest statewide average for regular at $1.89, followed by Arkansas and Oklahoma at $1.91, according to AAA. Nine other states averaged less than $2. Most were in the South and Southwest, but Minnesota barely made the cut at $1.999. (Prices fluctuate throughout the day and could change.) Regular averaged more than $2.50 in four states: Washington, $2.59; Alaska, $2.61; California, $2.65; and Hawaii, $2.85.
