President Joe Biden may face a potential “gas price time bomb” after Saudi Arabia announced its plans to lower its oil production in an effort to raise crude prices.
The two previous attempts by major producing countries in the OPEC+ alliance to cut production failed to increase prices. The new cuts, which will reduce production by 1 million barrels per day from July, are likely to impact the global market, including the United States.
Experts have warned that the consequences of these reduced oil production levels might not be felt for six to eight months, which means that any issues with gas prices in the U.S. would hit during Biden’s re-election campaign. While the current average retail gasoline price in the U.S. is $3.553 per gallon, which is $1.36 less than the price reported last year, analysts warn that there is still a risk of gas prices creeping up later in the year.
Patrick De Haan, who heads petroleum analysis at GasBuddy, has stated that there is not much concern for an immediate and significant rise in oil and gasoline prices due to the latest cuts in production. Denton Cinquegrana, the chief oil analyst at the Oil Price Information Service agency, also agrees, saying that there may not be a big near-term impact on U.S. gasoline prices.
However, both experts warn of potential long-term implications as low oil inventories could escalate oil prices when U.S. and global oil demand rises in line with the economic recovery. They urge analysts to keep an eye on the production coming from Russia, which pledged to extend its voluntary cut of 500,000 barrels a day under the OPEC+ deal through next year.
“The cuts have more long-term implications and almost no immediate implications beyond prices rising a few cents here and there. It will take time for the cuts to lead to even lower oil inventories,” De Haan stated. “The risk increases down the road that when U.S. and global oil demand rise in line with a potential economic recovery, low oil inventories could escalate oil prices when that occurs.”