OPEC and OPEC+ cut production slightly on Sept. 5, a surprise to energy analysts who had anticipated the group would maintain its current production levels.
The two energy alliances chose to reduce production by 100,000 barrels per day in October.
OPEC Changes Strategy
The reversal in production was unexpected because energy analysts had estimated the group would maintain its production policy.
In August, OPEC+ had decided to increase the output of oil by 100,000 barrels per day.
The small increase was viewed as a snub to U.S. President Joe Biden after his trip to Saudi Arabia where he asked the country to increase production of oil in an effort to lower gasoline prices and boost the global economy.
OPEC+ said in a statement that its decision to reverse its strategy and head back to August levels of production was because the change has been“intended only for the month of September.”
The next OPEC+ meeting is scheduled for Oct. 5.
Oil prices move higher on Monday after OPEC's news - crude futures of Brent, the international benchmark, increased by 3.9% to $96.63 a barrel at around 1:45 pm London time, while West Texas Intermediate (WTI), the U.S. benchmark, rose by 3.6% to $90 a barrel.
The goal is to create a psychological impact, said Gary Ross, founder of Pira Energy, in a tweet.
The goal of OPEC+ is to keep oil prices higher and the group "do not want prices below $90 Brent; closer to $100 is more like it. OPEC's price aspirations always moves higher when the mkt allows!"
Gasoline Prices Decline
Crude oil prices dropped significantly since June, falling by 25% as concerns increased that the Federal Reserve's interest rate hikes and China's restrictions due to covid would stymie economic activity and reduce demand.
While this news from OPEC was unexpected, the decline in gasoline prices for 12 consecutive weeks has been a respite for drivers.
The national average is $3.752 a gallon while the median price is $3.59 a gallon, he said. The bottom 10% of stations are selling gasoline for an average of $3.09 a gallon while the top 10% are selling it for $5.12 a gallon.
The most common price is $3.49 and there are now 41 states selling gasoline for under $4 a gallon while there are only two states selling gasoline for over $5 a gallon and 15 states are selling gas for under $3.50.
Consumers received a reprieve at the pump during a large portion of the summer months and for Labor Day weekend.
Consumers are faced with the "cheapest summer holiday this year," De Haan told TheStreet.
Ongoing fears of an impending recession have curbed demand slightly, but weekly data from GasBuddy from Sunday to Saturday showed gasoline demand was up slightly 2.5% from the week prior from holiday travel and up 0.3% from the four-week average.
As inflation rates still remain high, consumers are coping with tighter budgets from paying more money in energy, food, and housing costs.
The potential for more rate hikes from the Federal Reserve and additional lockdowns in China due to covid-19 have also impacted demand.
The decline in gas prices was due to an uptick in domestic oil production and an expansion of refining capacity in the U.S., Bernard (Bud) Weinstein, a retired energy economist at Southern Methodist University, told TheStreet.
The sluggish economy in China, the world's second-largest consumer of fossil fuels, along with the onset of a recession in large parts of Europe has "depressed the demand for oil and petroleum products and pushed down the price of crude oil by $30 per barrel since June," Weinstein said.
