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As gas prices hit record highs in Los Angeles on Wednesday, a pledge by OPEC+ to reduce its oil production by 2 million barrels a day brought concerns about more economic pain to come.
California is facing surging oil prices in the wake of shutdowns at several oil refineries that produce a specific grade of fuel for the state. Prices began to creep up in September after months of declines. And unlike the nationwide rise in gas prices over the summer, this most recent spike is mostly confined to California and the West Coast.
There was also debate among experts about the effect of the move by OPEC+, which amounted to the biggest reduction since 2020 and was designed to boost sagging oil prices.
It remains unclear how the reduction would affect pump prices, but experts said it poses another threat to the shaky global economy amid growing concerns about an impending recession.
The OPEC+ move comes a month before crucial midterm elections in the U.S. President Biden and other Democrats hoped the decline in gas prices in recent months would help them with an electorate angry at rising inflation and concerned over an economic downturn.
In March, Biden announced the U.S. would release of 1 million barrels of oil per day from strategic reserves for six months in hopes of easing gas prices.
“When President Biden released oil from the Strategic Petroleum Reserve, it hurt OPEC in terms of revenues. Most of that oil went to refiners,” said Phil Verleger, a Denver-based oil expert who formerly served as a senior staff economist on the Council of Economic Advisors. “Now, OPEC wants some of that money back. But Biden has already said he will release more from the reserve to counteract this.”
Verleger added that California’s record fuel price spike “is because of refining issues, not because of crude prices.”
Tom Kloza, an expert in energy prices who serves as global head of energy analysis for the Oil Price Information Service, also said OPEC+‘s decision should not hit California motorists too hard.
“I don’t think the crude agreement from OPEC will have much impact,” Kloza said. “A lot of the California refineries that have been out of service because of planned maintenance and unanticipated problems are coming back online and resuming production. You might see another increase over the next couple of days, but that should be it.”
The average price for a gallon of regular gasoline in Los Angeles ticked up to $6.494 on Wednesday, increasing five-tenths of a cent overnight, according to data from the American Automobile Assn.
Gas prices for regular fuel have jumped by more than 38 cents in Los Angeles since a week ago. This time last year, the average price was about $5.28 a gallon.
The Wednesday announcement by OPEC+, a coalition of oil-producing countries, to cut oil production by 2 million barrels a day also raised fears that the move could hurt the global economy.
Before the announcement, Moody‘s Investors Service said that any plan to raise oil prices now would likely fail and maybe even backfire.
“In our view, elevated oil prices cannot be sustained for long because of economies’ limited ability to absorb higher oil costs and continue growing,” said a note by Moody’s senior vice presidents Elena Nadtotchi and Madhavi Bokil. “A persistently high cost of oil would impede economic growth and hasten substitution to alternative sources of energy, leading oil prices to eventually fall to the reinvestment price range.”
Severin Borenstein, faculty director of the Energy Institute at UC Berkeley’s Haas School of Business, said the OPEC+ decision “might add 10 to 15 cents to the price of a gallon of gasoline.”
“That will be swamped by the number of refineries returning to service and by California’s switch to cheaper winter-blend gasoline,” he added.
Biden said he was “disappointed by the shortsighted decision,” while White House national security advisor Jake Sullivan and National Economic Council Director Brian Deese confirmed that the U.S. would release an additional 10 million barrels of oil from the Strategic Petroleum Reserve next month in response.
The Golden State has experienced the steepest hike in gas prices in the U.S., climbing to an average of $6.42 per gallon for regular fuel Wednesday and causing Gov. Gavin Newsom to shift to the state’s cheaper, winter-blend gasoline.
Other Western states, such as Oregon and Washington, have also seen increases.
“With gas prices continuing to surge on the West Coast and Great Lakes, the national average saw its second straight weekly rise,” Patrick De Haan, head of petroleum analysis at GasBuddy, said in a blog post. “But at the same time, areas of the Northeast and Gulf Coast have continued to see declines as the nation experiences sharp differences in trends between regions.”
De Haan said that West Coast states have seen gas prices rise between 35 and 55 cents per gallon in the last week but that Californians should expect some relief at the pump soon, despite the OPEC+ news.
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