Members of the Organization of Petroleum Exporting Countries (OPEC), along with allies like Russia, met in Azerbaijan on Monday to assess the status of their current oil production cuts.
Their verdict: keep production down by 1.2 million barrels a day collectively through June of this year.
This news helped push Brent Oil Futures, the global price benchmark, up 0.6% to $67.54 per barrel.
These production cuts were initiated in December in order to drive up the price of oil, which bottomed out at the end of 2018. OPEC countries and their allies rely on oil production to drive their economy, so higher prices directly lead to stronger economic output.
This is the kind of news that historically would scare the American consumer. If oil prices are rising, that means gas prices are also on the rise. Memories of the infamous $4.00 per gallon from 10 years ago, or maybe even the oil embargo from the 70’s if you are old enough, may begin to flood your mind.
In this day in age though, Americans should not fret too much about what OPEC does with their old production. Why? Simply put, the modern powerhouse that is American oil output.
America Leading the Pack
Ever since hydraulic fracking was widely adopted in the U.S., our oil production has boomed. So much so that we have been the largest oil producer in the world for about six months now.
What’s more, we have no ties to OPEC, so our drillers have free rein to keep the taps open even as de-facto OPEC leader Saudi Arabia and ally Russia are restricting production. When a 16% share of global oil production is combined with open taps, you get an American oil industry that has a lot of sway on global supplies.
How does this tie into keeping gas prices from surging? Even as OPEC aims to reduce oil supplies to increase the price, America’s growing oil production helps offset those cuts. This in turn weakens OPEC’s ability to push up the price tag.
This can be seen through the decreasing peaks in Brent Crude over the past ten years as U.S. production has increased. In June 2008, it peaked at $132.32 per barrel. The year 2012 saw a peak, but only at $125.45. In 2014, it was down to $111.80. The most recent peak in 2018? Only $81.03 a barrel.
Over this same period, U.S. oil output more than doubled, from 154,000,000 barrels during June 2008 to 344,000,000 barrels in September 2018.
(For more on the new landscape of global oil production with renewed U.S. dominance, check out my past post from December, 2018)
Don’t Fear the Pump
My point with all of this is that even with OPEC standing by their cuts and agreeing to sustain them well into 2019, U.S. gas prices will not surge like they might have 10 years ago. This is not to say that they won’t rise, but the increase will likely be very modest and quite bearable for the average commuter.
Just look at your local gas station. Two months after OPEC began cutting production, the average price for a gallon of regular grade gas is still below $2.30. We are above the floor of $2.15 per gallon on average, but are remaining in a tolerable “cheap gas” range.
So don’t worry, that brand new Ford F-150 is going to remain bearable at the pump for the time being. Those headlines about OPEC production cuts shouldn’t cause much worry either. So long as America is driving oil production, prices will be in our control.
Keep An Eye Out
The American Petroleum Institute releases their data on American oil inventories on Tuesday, so look out for an update to this post with the most recent information on U.S. oil production.