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The Journal Gazette

December 02, 2016 1:01 AM

OPEC decision unlikely to drive up gas prices

DAVID KOENIG | Associated Press

DALLAS – OPEC’s decision to cut production gave an immediate boost to oil prices, but the effect on consumers and the U.S. economy is likely to be more modest and gradual.

The cartel agreed Wednesday to cut output by 1.2 million barrels a day, reversing a strategy that produced lower oil prices and pain for U.S. drillers but saved money for consumers.

Even if OPEC members carry through on their promises, global oil production would fall by about only 1 percent. There is still more supply than demand – the reason oil prices collapsed beginning in mid-2014.

The agreement has sparked a two-day rally in oil of about 12 percent to above $50. If the price keeps rising, some of the slack from OPEC cuts will be picked up by producers in the United States – good news for drillers and oilfield workers in Texas and North Dakota. President-elect Donald Trump has vowed to increase drilling in the U.S., the world’s third-largest producer after Saudi Arabia and Russia, which would help ensure there is plenty of oil.

In short, analysts say, consumers and businesses are not likely to see the return of $100-a-barrel oil – and the high energy costs that came with it – anytime soon.

Still, there could be some short-term shocks even before OPEC’s cuts take effect in January.

“The average Joe filling up his tank may notice in the next week or two that gas prices move higher by 5 to 15 cents a gallon just on the psyche of the deal,” said Patrick DeHaan, an analyst for GasBuddy, a site used to comparison-shop for gasoline.