Here’s how high experts think fuel costs will go — and when.
In their first face-to-face meeting since 2020, a collective of the world’s most powerful oil producers (commonly called OPEC+, or Organization of the Petroleum Exporting Countries) decided this week to impose massive cuts to oil production. Starting in November, the group will reduce that production by 2 million barrels per day — and the effects will be felt in your wallet almost immediately.
Yep, we’re talking about gas prices again.
After a long, painful year in which we saw historically high fuel costs all over the nation — at one point, a gallon of gas in certain areas cost more than the minimum wage — it’s looking all but inevitable that prices are going to spike once more. It’s hard to say just how much more expensive gas will become, or how close it could come to the ballooning costs we saw earlier this year. But some experts are predicting an average price increase of at least 40 cents per gallon to begin with, and that rise could begin within weeks and last for months.
Here’s a breakdown of what exactly is behind this move by OPEC+ and what the Biden administration is planning to do about the latest crisis at the pump.
Did Saudi Arabia just snub President Biden?
On Wednesday, the Biden administration slammed the decision-makers behind the OPEC+ oil cut. In a statement, the White House claimed to be “disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine.” President Biden himself said he was “concerned” about the cuts during a press conference, adding that they were “unnecessary.”
According to CNN, the White House had made multiple attempts to dissuade allies in the Middle East from cutting oil production in the months leading up to this announcement by OPEC+. In fact, Biden flew to Saudi Arabia over the summer in a bid to convince Crown Prince Mohammed bin Salman to take steps towards boosting oil supply and availability. Now, pundits are calling the situation a diplomacy failure for Biden.
To CNBC, Dan Yergin, vice chair of S&P Global, characterized OPEC+’s decision as “a blow against Biden,” adding that “it’s seen as somehow political interfering in the U.S. election, although the cut doesn’t go into effect until November.”
Similarly, Bill Perkins, CEO of Skylar Capital Management, said, “There seems to be a mini battle between [Strategic Petroleum Reserve] releases in the White House and what’s going on with OPEC+. In the end, OPEC+ is going to win that battle. The SPR will eventually run out of food it can withdraw. So that’s a dangerous game that we’re playing there.”
While this apparent political battle continues to run its course, there will hopefully be a slight alleviation in these price increases: The Biden administration has ordered the Department of Energy to release an additional 10 million barrels from the Strategic Petroleum Reserve in the next month.
Why OPEC+’s move will impact the Ukraine-Russia war
It’s not just gas prices that will change as a result of OPEC+’s decision to cut oil production. The decision could radically alter the next phase of the Ukraine-Russia war, too.
Saudia Arabia and Russia are leaders within OPEC+. As the New York Times reports, their decision to cut production has been seen by foreign policy experts as a direct rebuke to recent political efforts by the United States and Europe to cut Russia off from its massive oil profits as a means of supporting Ukraine.
Now, Russia’s alliance with Saudi Arabia has been revealed to be more solid than the Biden administration might have thought earlier this summer — and if Russia maintains a stranglehold on oil production and distribution, it could lead to a new wave of strength for the previously destabilized Russian military.
The move by OPEC+ will also provide a double whammy of making it more difficult for the United States and Europe to continue to take measures to cut Russia off. Bhushan Bahree, an executive director of S&P Global Commodity Insights, told the New York Times, “To the extent that prices rise, it will make it that much more challenging for Europe to proceed with its sanctions on Russian oil in December.”
