Mar 5, 2021 - Energy & Environment

Surprise oil supply cut from OPEC won't just hit gas prices

Data: FactSet; Chart: Axios Visuals

Oil and gas prices jumped on Thursday after the Organization of the Petroleum Exporting Countries (OPEC) and allied producers said on Thursday that they would extend production cuts into April.

The big picture: Oil is being driven by the production cuts of OPEC, a consortium of the world's largest producers, and expectations for a rebound in global demand as more countries emerge from coronavirus lockdowns.

  • Crude oil has been a top performing asset this year, with variants like gasoline and diesel also delivering big gains in 2021 of 38.6% and 24.3%, respectively.

The intrigue: OPEC has taken an incredulous approach to the massive rebound, suggesting prices could rise even more meaningfully in the coming months.

  • Saudi Energy Minister Abdulaziz Bin Salman told journalists at a virtual press conference Thursday that the "jury is still out" on the future of the oil market.
  • “At the risk of sounding like a stuck record, I would once again urge caution and vigilance."
  • “Before we take our next step forward, let us be certain the glimmer we see ahead is not the headlight of an oncoming express train.”

What's next: Gas prices in the U.S. already have risen to a one-year high and experts had predicted they could continue rising higher even before the unexpected extension of production cuts by OPEC.

  • In addition to the price drivers see at the pump, this could have implications for the cost of air travel and the price of imported goods, which were already seeing increases thanks to global supply chain disruptions and increased inflation expectations.
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