Gas prices are likely to rise as countries like Saudi Arabia cut oil production
MARY LOUISE KELLY, HOST:
Saudi Arabia had a big surprise for the world on Sunday. Along with a few other countries, it revealed it is cutting oil production. That is pushing prices up sharply. NPR's Camila Domonoske is here to explain why this is happening and what it may mean for all of us. Hey, Camila.
CAMILA DOMONOSKE, BYLINE: Hi, Mary Louise.
KELLY: All right. So when I say they are cutting prices - or cutting production, how big? How big are the cuts?
DOMONOSKE: Yeah, they're substantial. Saudi Arabia is the biggest player here, as usual. They're cutting half a million barrels per day. You've got the UAE, Iraq, a few other countries also making cuts. The sum total is more than a million barrels per day, and that's a million barrels per day less out of nowhere, basically. These are OPEC+ members, but this was not a deal negotiated out of an OPEC+ meeting that people saw coming. It was just sort of - boom - on a Sunday, you know? And to put these numbers into context, I asked Jorge Leon of Rystad Energy, you know, how big of a deal is this? Here's what he said.
JORGE LEON: It was a massive surprise to everybody in the market. If you think about it, this is 2% of global supply that is going to be taken off the market. And this is really, really significant.
DOMONOSKE: Really, really significant - two reallys there. These cuts are going to kick in starting in May, last all year. But prices have already jumped. They went up 5 bucks overnight, which is a lot.
KELLY: Yeah. Camila, back to that first question I laid out at the beginning, why? Why is this happening?
DOMONOSKE: Yeah, sorry. Why? Well, whenever they cut production, countries like this, oil prices go up, right? And oil prices went down last month because of all the banking turmoil. So this was a move that pushed them back up. Now, Saudi Arabia consistently denies that it is trying to control prices. But if you look at what happened in oil markets last month, the price is all that changed. It's not like we were using a bunch less oil or making a lot more of it. The price went down, and now this cut is pushing them back up.
KELLY: A practical question since you bring up prices - when we go to fill up our cars, what might this mean for gas prices?
DOMONOSKE: Yeah, they're almost certainly going to go up. It's hard to predict exactly how much they'll go up. Gas prices - everyone remembers they were very high, and they had come back down. So now the average is around 3.50. We'll see what happens. I'll also note it's not just the obvious impact on prices at the pump because oil is everywhere in the global economy. It's how we move the vast majority of stuff that we move. When prices go up for oil, it drives up all kinds of prices. And I should say this is a bit of a dangerous game for Saudi Arabia because if prices go up too much, people will cut back on driving, on buying, on everything. In the long term, maybe people buy electric vehicles faster than they would otherwise. So it's possible for prices to get too high, even for Saudi Arabia. And, you know, they could surprise us again and reverse course. This cut came out of nowhere. It could go away as quickly.
KELLY: Yeah. Speak to the politics for a second because U.S.-Saudi relations were already tense. What might this mean for that relationship?
DOMONOSKE: Yeah. If you look at the recent history here, high gasoline prices are always a political concern in the U.S. That's understating it a bit. President Biden went to Saudi Arabia last summer. He was asking for more oil production, came back very publicly empty-handed. Meanwhile, Saudi Arabia and China are growing closer diplomatically, economically, specifically in terms of oil. So that's all context for these cuts coming, which - we have, in fact, heard from the White House on these cuts. The administration's quote was that it did not consider these cuts to be advisable. I will note that, you know, the United States is the world's biggest consumer of oil in the world. So we feel these - we feel increases in oil prices as consumers. But there are some American companies for whom this is a big boost to the bottom line because the U.S. is also the biggest oil producer in the world. And higher oil prices, like the kind that these cuts promote - they help oil companies' bottom line.
KELLY: Thank you, Camila.
DOMONOSKE: Thank you.
KELLY: NPR's Camila Domonoske. Transcript provided by NPR, Copyright NPR.