After three months of falling gas prices in the United States, Americans should brace themselves for prices to rise again soon.
On Wednesday, regular gas was averaging $3.83 nationwide, according to the AAA auto club, up five cents from last week and the first time prices have risen in more than three months. And that was before OPEC+, a global coalition of oil-producing nations, announced it would begin cutting oil production next month.
Prices rose another three cents on Thursday on the news, and it’s starting to look like it won’t stop there.
Gasoline demand is rising and global supply will remain tight after the OPEC+ decision, which means higher prices. And while price increases over the past week have been relatively slow and steady, cuts in global oil production around the world could herald a much faster and more dramatic increase.
Why have prices increased so far?
The average price of gasoline topped $5 a gallon for the first time last June — California has seen it top $6 — as global oil shocks reverberated from the invasion of Ukraine by from Russia
Russia is the world’s third-largest oil producer, and although it exported relatively small amounts of oil to the United States, the disruption caused by the war sent world oil markets into a tailspin and sent prices soaring.
Prices began to fall on Earth in July as demand receded and more supply entered the market from part of the U.S.’s strategic oil reserves, which President Biden had authorized to tap up to 1 million barrels of oil per day in March.
But that trend may be starting to reverse, with gas demand starting to pick up across the country in recent weeks, according to AAA, while supply remains uncertain.
Oil supplies in the US have been affected by an unexpected series of accidents and maintenance work at refineries across the country. A fire and explosion at a BP plant in Ohio last month killed two workers and shut down operations indefinitely, and the plant could remain offline for months. Toledo Blade he reported, sending prices soaring in the Midwest.
On the West Coast, “a series of planned and unplanned refinery maintenance issues have greatly reduced fuel supplies in California,” said Doug Shupe of the Automobile Club of Southern California. San Diego Weather last week. Maintenance work has driven up gas prices from California to Washington state in recent weeks.
Gradual releases from the US strategic oil reserve have helped calm the market, but that can’t last forever. The stockpile now stands at 416 million barrels of oil, down from 560 million in April and its lowest level since 1984. The Biden administration had planned to halt releases in October.
But with the latest OPEC+ news and other threats to global oil supplies, the country may need to continue tapping into these strategic reserves.
Why prices could continue to rise
Wednesday’s decision by the OPEC+ coalition, which includes Russia and 23 other oil-producing nations, could become the latest threat to stable global oil supplies.
The coalition announced it would cut its collective output cap by 2 million barrels a day from November as the group seeks to keep global oil prices high. Biden quickly criticized the move, calling it “unnecessary.”
Brent crude futures were already up more than 3% between the OPEC+ announcement and Thursday.
For Biden, high gas prices could become a political sticking point with midterm elections coming up next month. U.S. national security adviser Jake Sullivan said Biden was “disappointed” by the result and that the administration was exploring different avenues to keep gasoline prices as low as possible, including continuing to free up the supply of the strategic reserve.
The White House and the Energy Department may also be considering a ban on all US gasoline exports to shore up domestic supplies. Bloomberg reported on Tuesday, although experts have pointed out that such a plan could backfire by creating further disruptions in global energy markets, particularly in European allies facing a growing energy crisis.
Oil prices could also rise when Europe implements a planned ban on Russian oil imports starting in December, according to Treasury Secretary Janet Yellen, who warned last month that Europe’s ban carries “a risk ” for world crude oil prices.
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