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SALT LAKE CITY — Newly announced production cuts by a group of oil producing nations, led by Saudi Arabia, are set to drive up fuel prices and curtail a trend of mostly steady declines since record highs were set last summer.
On Sunday, OPEC+ countries announced plans to reduce their collective production by over 1 million barrels a day, adding to cuts enacted last fall that brought down daily output by over 2 million barrels. The two actions represent a 3.7% cut to global demand as calculated by Reuters.
The latest reductions could lift oil prices by $10 per barrel, the head of investment firm Pickering Energy Partners told Reuters on Sunday, while oil broker PVM said it expected an immediate jump once trading started after the weekend.
"I expect the market to open several dollars higher ... possibly as much as $3," said PVM's Tamas Varga. "The step is unreservedly bullish."
The cost of crude oil, which had been running around $70 per barrel since mid-March, moved up quickly following the announcement and was trading at just over $80 per barrel at midday on Tuesday.
According to data from AAA motor club, the average price of a gallon of regular gas across the U.S. was $3.51 on Tuesday, down from $4.19 a year ago. The average price of gas in Utah is currently $3.70 per gallon, down from $4.42 per gallon this time in 2022.
If the price of crude stays at or above $80 a barrel, "we could see the national average price move in the 8-to-12 cent range, and we haven't seen it yet," AAA spokesperson Andrew Grossman told CBS News.
The cost of crude accounts for about half of the overall price of gas, according to the Energy Department. From Sunday to Monday, average gas prices stayed steady at $3.50 a gallon, according to AAA, but Grossman told CBS that prices could increase by 5 or 10 cents per gallon by the end of the week.
Those price increases would come just ahead of seasonal price increases of 5 to 15 cents per gallon that typically accompany the switch from winter to summer blends at U.S. oil refineries. While refineries are already making the transition to summer formulas that aim to reduce fuel evaporation rates amid hotter summer temperatures, price changes usually show up at the pumps in early May.
While airline ticket prices are currently down from their peak in May 2022, the average plane ticket is still over 20% more expensive than it was this time last year, per CNET, and the expected fuel price increases following OPEC+'s production cuts are likely to drive those costs even higher.
Increased fuel prices can also contribute to inflation gains as businesses hike prices to cover the increased costs of manufacturing, distribution and delivery of their products. While the overall U.S. inflation rate has edged down since hitting a 40-year high of 9.1% last June, the annual rate came in at 6% in February, still well over the Federal Reserve's target annual rate of 2%.
The average price of gas in the U.S. hit an all-time high of $5.02 per gallon last June. Utah hit its own all-time peak of $5.26 per gallon in early July 2022.
