(NewsNation) — A group of the world’s largest oil producers recently agreed to extend production cuts through next year, a move intended to bolster prices for the valuable resource.
The OPEC+ alliance, which includes countries like Saudi Arabia and Russia, decided Sunday to continue most of its oil output cuts into 2025 amid concerns about slowing demand.
Even with the Israel-Hamas war, the price of Brent crude, the international oil benchmark, has hovered around $80 a barrel over the past month. That’s still below the price in June 2022, when prices surged above $100 a barrel.
The plan to continue restricting supply is meant to benefit the Saudis and the Russians, which could come at the expense of American drivers. Still, seasonal factors may have a bigger impact on gas prices in the short term.
Here’s what to know and how likely you are to see higher gas prices.
What is OPEC and what are they doing?
The Organization of the Petroleum Exporting Countries (OPEC) is a group of some of the world’s most oil-rich countries including Saudi Arabia, Iraq, Iran and Venezuela.
Together those nations function like a cartel, meeting regularly to coordinate oil output to manage global prices for the entire group.
In 2016, OPEC signed an agreement with ten other oil-producing countries, including Russia, to create what is now known as OPEC+.
Over the weekend, OPEC+ agreed to extend three different sets of cuts, a decision that amounts to roughly 5.8 million barrels a day. That move is aimed at shoring up prices as output from non-OPEC producers like the U.S. continues to rise.
Altogether OPEC+ crude output accounts for roughly 40% of global oil production. Nearly 80% of the world’s proven oil reserves are also in OPEC member countries.
By reducing the global supply of oil, OPEC and its allies can push up prices and make more money.
Will gas prices in the U.S. go up?
The price of oil makes up half the cost of a gallon of gasoline, which means prices at the pump move as oil prices do.
With that said, the latest OPEC+ announcement may not have a major impact on American drivers right off the bat. GasBuddy’s lead petroleum analyst Patrik DeHaan told MarketWatch that the production-cut extension had already been priced into the market for several weeks.
Others, like Peter McNally, a global sector leader for industrial materials and energy at Third Bridge, expect a slight price bump. McNally told ABC News he expects gas prices to rise between 20 and 30 cents as a direct result of the production cut.
The bigger question mark for summer gas prices is demand.
“With GasBuddy data showing gasoline demand plummeting after Memorial Day, and refiners inputting the largest amount of oil into their facilities in years, it’s very likely we’ll continue to see gas prices fall as we approach July 4,” DeHaan told MarketWatch.
Today, gas costs roughly what it did a year ago, around $3.50 per gallon for regular, according to the American Automobile Association (AAA). That’s well below the $5 per gallon average in June 2022 but higher than in June 2021 when a gallon of regular cost $3.09.
Gas prices typically rise in the summer as more drivers hit the road and refineries switch to the costlier summer blend gasoline.
As for whether prices could rise higher than normal, a looming hurricane season is the main concern.
“A storm impacting the Gulf Coast oil production and refining centers could push prices temporarily higher,” AAA spokesperson Andrew Gross said in a recent statement.
Since the OPEC+ announcement, the Brent crude oil price has fallen to its lowest since February — a sign of sluggish anticipated demand growth.
While the production cut extension may not trigger soaring gas prices for now, it likely means prices won’t fall off dramatically ahead of the 2024 Election in November.