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Gary Zobel fills up his car at the Loaf & Jug gas station on March 8 in Mills. OPEC's plans to cut production could raise gas prices, though the move's impact is far from certain.
In the days after the countries supplying close to half the world’s oil announced cuts to their production quotas, the implications for Wyoming remain hazy.
The members of international oil cartel OPEC+ — which include Russia and Saudi Arabia — agreed to reduce total allowed output by 2 million barrels per day.
“Demand in the world is about 100 million barrels a day,” said Rob Godby, an economics professor at the University of Wyoming. “Supply in the world is right at about 100 million barrels a day. It’s tight right now.”
That suggests, in theory, that global production will fall about 2% short of meeting the existing need for oil, driving up prices.
But the reality is more complicated.
“Even prior to this announcement, and actually all summer, OPEC and OPEC+ have not been able to meet even their own targets,” Godby said. “So while their own target was just under 44 million barrels a day, they’ve been producing about 3 million barrels a day less than that.”
Meaning, he added, that “this 2-million-barrel-a-day reduction — it’s kind of a challenge to figure out how many barrels a day it really represents coming off the market, if any.”
If the world’s oil supply does fall short of demand, rising oil prices — the main determinant of the cost of gasoline — will push the price at the pump back upward. Regular gas averaged about $3.87 per gallon in Wyoming on Thursday, more than a dollar less than the state’s July 1 peak, but almost two cents higher than last Thursday.
Meanwhile, Godby said, the stubbornly high diesel prices caused partly by the war in Ukraine are contributing to added uncertainty among the Wyoming drivers and industries that rely on the fuel.
“The differential between gas and diesel right now is still really significant. It’s much wider than it normally is, historically,” he said.
Gas prices are getting painfully high again, and it's expected to get much worse, as OPEC countries cut oil production far above the rate at which forecasters expected. "We are not endangering the energy markets," said Haitham Al Ghais, OPEC security general. "We are providing security, stability, to the energy markets. Everything has a price energy security has a price as well."AAA is already reporting the national average for a gallon of regular gas is $3.87. It's nowhere near the peak above $5 from this summer, but it's still a financial pinch for some drivers, especially in states like California where the average is $6.42 a gallon. Several of the state's oil refineries have had to shut down or slow down production amid maintenance issues. Meanwhile, state regulations require a special summertime blend intended to reduce pollution, but it's also more expensive.California Gov. Gavin Newsom is asking the state air regulator to allow some of the cheaper winter blend to hit the market."There's a lot of alternatives," Gov. Newsom said. "We haven't made up our mind yet."At a national level, President Joe Biden and his team are considering options to help bring prices down, including a further release of petroleum from the country's strategic reserve.Still, the administration sounds optimistic, just weeks from a midterm election. "We believe we have the tools here at home to work with our allies and to work with Congress to make sure that we address the mistake that OPEC made yesterday, which was the wrong direction," said Amos Hochstein, senior adviser for global energy security at the U.S. State Department.
President Joe Biden, who asked Saudi Arabia in July to increase oil production, “is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine,” according to a Wednesday press release from the White House.
After releasing roughly a million barrels of oil per day from the country’s Strategic Petroleum Reserve, at Biden’s direction, to ease market strain over the last six months, the U.S. Department of Energy said Sept. 19 that it would release up to another 10 million barrels of oil in November.
The oil and gas industry has previously criticized the president’s decision to tap the Strategic Petroleum Reserve in what it considers an effort to placate unhappy voters. From the industry’s perspective, the Biden administration — and Congress — should be lowering the barriers to new production on federal lands, rather than raising the cost of new leasing, as the Inflation Reduction Act did.
(Environmental groups, however, argue that the federal oil and gas program is still too generous to oil and gas companies.)
How Wyoming’s oil producers respond to the latest move by OPEC+ “just all depends on where prices go with this cut,” said Ryan McConnaughey, vice president of the Petroleum Association of Wyoming.
The question is “whether or not the prices will maintain at a level that is profitable for companies to operate here in Wyoming,” he said. “But I think if companies are optimistic about the long-term trends of oil prices in Wyoming, they will start to increase production, as they can.”
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Gary Zobel fills up his car at the Loaf & Jug gas station on March 8 in Mills. OPEC's plans to cut production could raise gas prices, though the move's impact is far from certain.
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