OPEC is trying to prop up oil prices as global demand slows down
JUANA SUMMERS, HOST:
With a development that means we might need to brace for higher gas prices again, big oil producers like Saudi Arabia and Russia say they are planning to pump less oil in the coming months. The foreign producers are trying to prop up oil prices even as the global economy and demand for oil are slowing down. For more on this, we're joined by NPR's Scott Horsley. Hey, Scott.
SCOTT HORSLEY, BYLINE: Hi, Juana.
SUMMERS: So Scott, why are OPEC and its allies, like Russia, cutting oil production now?
HORSLEY: It's partly economics. Remember, oil prices soared in the spring following Russia's invasion of Ukraine, but they've since come back to Earth, and the price of oil could fall further as the global economy slows down and demand shrinks. Obviously, countries like Russia and Saudi Arabia are heavily dependent on oil revenues, so they have an economic incentive to keep the price high. Ben Cahill, who's an energy expert at the Center for Strategic and International Studies, says there's also some geopolitics at play here.
BEN CAHILL: Well, I think that OPEC+ is also sending a message. I think they're putting down a marker and saying that they're still a force in the market, and they want to regain control of the market narrative.
HORSLEY: OPEC and its partners say they're going to cut production by 2 million barrels a day next month. Now, in reality, some members of the cartel were already producing less oil than promised, so the actual cut will probably be more like 1 million barrels a day. That's about 1% of global demand, and it is enough to get people's attention.
SUMMERS: And Scott, I've got to ask you the big question that is on so many people's minds right now, including mine, to be honest - how is all of this going to affect gas prices?
HORSLEY: Yeah. Gas prices hit a record back in June, topping $5 a gallon nationwide on average. But then all through July, August and the first part of September, gas prices fell. We had 98 straight days of falling gas prices, the second longest streak on record. Now, since then, prices have started to inch up on average, but there's been an unusually wide variation around the country. We've got gas selling in some areas for under $3 a gallon and then in other areas for more than $6 a gallon. Devin Gladden, who's with AAA, says that's not about crude oil prices, but more local factors. For example, you had a deadly refinery fire in Ohio that's pushed up gas prices in the upper Midwest. And you've got half a dozen oil refineries that are right now undergoing maintenance in California.
DEVIN GLADDEN: There have been a number of refinery issues along the West Coast, so that's put a real squeeze on supply. And right now, demand is still very robust, and so that has meant prices have increased.
HORSLEY: Now, ordinarily, this time of year, summer road trips would be behind us and demand for gasoline would drop off a little bit. That could provide some relief at the pump. But if crude oil prices keep climbing in response to OPEC's move, then all bets are off.
SUMMERS: You know, when I think about gas prices, I also think about inflation. So what could this mean, more broadly, for the cost of living?
HORSLEY: Yeah, falling gas prices actually helped lower inflation in July and August after a four-decade high back in June. But now that pump prices are climbing again, we're not likely to see that kind of relief when the September inflation numbers come out this coming week. We've also talked before about the outsized psychological effect that gas prices have on how people feel about inflation. You know, when gas prices were soaring in the spring, people worried that inflation might just keep spiraling out of control. Then, when prices came down at the gas pump over the summer, people relaxed a little bit and were more likely to say they thought inflation would ease up in a few years. The Federal Reserve keeps close tabs on this psychology because the more people think prices are going to keep going up, the greater the danger they actually do. So that's another thing to keep an eye on as these two-foot-tall price signs outside the gas station change.
SUMMERS: And Scott, the Biden administration has been urging the Saudis to pump more oil. So what does this mean for the White House?
HORSLEY: Right. Remember, Biden played that high-profile visit to Saudi Arabia in July in hopes of getting more oil production. Ben Cahill said this is not the outcome the president was hoping for.
CAHILL: Prices are bound to increase. And obviously, you know, a month ahead of midterm elections, this is a huge concern for the Biden administration. I mean, they've really been laser-focused on gasoline prices for a long time now.
HORSLEY: The White House is taking other steps to increase supply. They've, of course, been releasing oil from the Strategic Petroleum Reserve and plan to do more of that next month. Domestic oil production has also been growing slowly over the last year. It's up about half a million barrels a day - or about half as much as OPEC and its partners now plan to cut off.
SUMMERS: NPR's Scott Horsley. Thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.