In what is thought of as a surprising move by many, OPEC+ announced last week that they would be increasing production by about 50% throughout the months of July and August. More specifically, the gas producing giant led by Saudi Arabia stated that they would be increasing production by 648,000 barrels of oil a day.
OPEC+, like many organizations around the world, saw dramatic negative impacts because of the COVID-19 pandemic, which led them to cutting oil production by a significant margin. Ever since the pandemic began to slow down, OPEC+ has been very hesitant to ramp up their production back to pre-pandemic levels. Additionally, the organization has seen complications to their production efforts because of the invasion of Ukraine carried out by Russia.
The White House did respond to this announcement, giving recognition to Saudi Arabia, Kuwait and Iraq for their roles in attempting to ramp up production as soon as possible. Experts on the other hand are skeptical about whether this effort will be enough to address the demand for gasoline here in the US.
The US is not the only country that will hold high demand for oil and gas either. Just last week, the European Union agreed to phase out 90% of Russian oil over the next six months as part of an action plan against the country. This means that the countries within the EU will be looking for oil and gas in other places to address their own demand. Another factor in this equation is China, which is the biggest importer of crude oil. And as the country comes out of its latest lockdown, demand is going to increase there as well.
We are also seeing the demand for gasoline hold steady within our own borders, even though we keep hitting record prices. On Friday the national average for a gallon of gas was $4.71, and it is hard for those prices to go down when people still absorb the costs and keep driving at the rates we are seeing right now. This is also paired with the fact that we just entered the traveling season, which is when gas prices are typically at their highest.
Because of the down-sizing it went through during the pandemic, experts remain skeptical that OPEC+ can keep up with this production projection. Furthermore, the pledge made by OPEC+ does not really address how they plan to deal with the long-term issues, or other problems across the oil market.