After OPEC+ makes big oil cut, some consider implications for pump & politics

An alliance of some of the world's largest oil producers voted to reduce production next month.

The OPEC+ alliance of oil-exporting countries decided Wednesday to sharply cut production to support sagging oil prices, a move that could deal the struggling global economy another blow and raise politically sensitive pump prices for U.S. drivers just ahead of key national elections.

Right now, the national average for a gallon of regular gas is $3.86 -- up 3 cents a gallon from Wednesday’s price for regular.

In Florida, prices are up five cents a gallon. The average right now is $3.22.

And Georgia drivers are paying an average of $3.19 -- up two cents.

The spike might not only impact consumers but also lead to political fallout with midterm elections just weeks away.

“Obviously, it’s not good to have gas prices going up,” said Rep. Pramila Jayapal, D-Washington, chair of the Congressional Progressive Caucus. What might be less obvious is what other economic dominos could fall as a result. It starts with the OPEC+ decision to slash oil production by 2 million barrels a day starting next month.

That’s more than expected -- and the largest cut since the pandemic started.

“(Shrugs) Everything has a price. Energy security has a price as well,” said OPEC Secretary General Haitham al-Ghais.

That threatens to increase the cost of gas in the U.S.

“Less supply of crude oil equals less supply of gasoline. Less supply of gasoline at current demand levels equals higher prices,” said Stephen Schork, oil analyst and co-founder of The Schork Report.

Retailers paying more for shipping could pass on the cost to consumers. And broader inflation could affect interest rates.

“When higher oil prices are putting pressure on inflation, the Federal Reserve really has to keep rate hikes going,” said Elsa Lignos, managing director of FX Strategy, RBC.

These dominos are starting to fall right before voters head to the polls for the midterms.

“There’s only so much control any American president has over gas prices, but voters blame the people in charge as gas prices go higher,” said Margaret Talev, Policy, Polling & Politics Managing Editor for Axios.

Oil is trading well below its summer peaks because of fears that major global economies such as the U.S. or Europe will sink into recession due to high inflation, rising interest rates and energy uncertainty over Russia’s war in Ukraine. The OPEC+ decision could help member Russia weather a looming European ban on most of Moscow’s oil, but its impact will have some limitations because countries in the alliance already can’t meet their quotas.

U.S. President Joe Biden considered the OPEC+ decision “short-sighted while the global economy is dealing with the continued negative impact of (Russian President Vladimir) Putin’s invasion of Ukraine,” White House press secretary Karine Jean-Pierre told reporters aboard Air Force One.

“It’s clear that OPEC+ is aligning with Russia with today’s announcement,” she said.

Others also allege the timing isn’t a coincidence but a ploy from the leaders of Russia and Saudi Arabia.

“Vladimir Putin and MBS are essentially trying to interfere in our election through these actions, using OPEC,” Jayapal said.

Some energy analysts say they see reason to hope because the global oil market could be oversupplied until the end of the year. And that could weaken the impact of OPEC’s production cuts.

___

Associated Press reporters Chris Megerian and Josh Boak in Washington contributed.


About the Authors:

This Emmy Award-winning television, radio and newspaper journalist has anchored The Morning Show for 18 years.