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OPEC deal could trigger gas price hikes
But, analysts will believe the cuts when they see them
new deh OPEC deal-oil prices up pic web

 It came just in time for the holiday driving season.

The Organization of Petroleum Exporting Countries Thursday agreed to cut oil production worldwide by 1.2 million barrels a day beginning Jan. 2. This has already caused a 10-percent rally in crude oil prices and could mean higher gas prices nationwide by the end of the week.

However, petroleum industry analysts are skeptical.

Tim Scheck, owner of Scheck Oil in Russell, is one who has his doubts. “We certainly appreciate the OPEC nations getting an agreement put together.”

But, “I’ll believe when I see it,” Scheck said. “In the past, they have not honored their agreements.”

Besides, the nation still has an energy glut and the potential to produce much more. So, if the reductions are made, “we’ll go back to drilling. That would fill the void.”

Patrick DeHaan of the Gasbuddy website is in the same camp. “I have to wait and see.” 

Given the varied national agendas of OPEC member nations and a history of not following their own accords, DeHaan doubts the deal will last. “It will be hard for the agreement to have any long-term impact.”

Nonetheless, “increases at the pump have already been visible in various locations across the state,” said Jim Hanni, AAA Spokesperson. “Crude oil closed more than $4 higher Wednesday than it did on Tuesday. Retail gas prices are directly related, meaning prices at the pump could go up between 5-10 cents a gallon as a result.”

OPEC decided to cut oil production in an effort to rebalance the oil market as a result of the glut in the global oil supply that has pressured oil prices lower the last few years. 

But, DeHaan said a 1.2 million reduction is only 1 percent of daily global production. “That could be filled by U.S. producers.”

Furthermore, the total cut includes oil from Indonesia which is no longer an OPEC member. When that is removed, the reduction is only about 400,000 barrels.

“That’s small peanuts when you look at global production totally 90 million barrels per day,” DeHaan said. He added that the surge in oil and gas prices are the result of a skittish industry and are really unwarranted.

The impact

According to AAA, the national average for a gallon of regular gas Friday was at $2.16, up slightly over the last few days after dropping for weeks.

In Kansas, the average price for a gallon of regular unleaded is at $1.96, unchanged overnight. As usual, gas prices vary by region. Topeka remains the eleventh lowest metro price in the country $1.89.

Prior to the agreement, there was speculation that the retail price of gas could drop below $2.00 by year’s end. Although demand remains relatively flat and inventories have grown over the past three weeks, the path back to the $2.00 mark may take a while longer.

The agreement is slated to last six months. OPEC plans to meet again on May 25, 2017, and will discuss the possibility of an extension at that time.

Higher pump prices this time of year would be bucking a trend, Scheck said.

Prices at the pump generally fall in December. The last four years have seen the U.S. average price of gas increase just once in December — that was in 2013, when the national average ended the month 5 cents higher than when it started.

And it’s also fallen precipitously — in December 2014, the national average plummeted 51 cents per gallon from $2.75 to $2.24. Over the past four years, the average decline from Dec. 1-31 has been 15 cents per gallon.

Scheck blames the oil cartel. “They have the handle on the oil and gas industry,” he said.

“It’s a vicious cycle,” he said. OPEC makes cuts, the U.S. ramps up production, then OPEC responds by increasing its output.

This has led Scheck to wonder if oil prices will ever completely rebound. 

But, Scheck has faith in President-elect Donald Trump. “He is friendly towards the oil industry” and could set policies that may reverse this.