Forbes Piece: OPEC+ Muscle Flex Likely Means Higher Gas Prices At The Pump

[Note: This story was also posted at Forbes.com]

LOS ANGELES, CA - Prices advertised at a Shell station in November, 2021. (Al Seib / Los Angeles Times via Getty Images

At the recent CERAWeek conference in Houston, executives of U.S. oil companies warned that crude prices would probably move higher with the resurging influence of the OPEC+ cartel over international oil markets. ConocoPhillips CEO Ryan Lance predicted that “OPEC’s market share probably grows from like 30 per cent today to somewhere closer to 50 per cent. The world is going back to what we had in the ‘70s and the ‘80s unless we do something to change that trajectory.”

Pioneer Natural Resources CEO Scott Sheffield remarked “I think the people that are in charge now are three countries — and they’ll be in charge the next 25 years. Saudi first, UAE second, Kuwait third.”

Those and other comments made by oil executives recently look prescient today in the wake of the announcement by OPEC+ that its members would be implementing up to 1.16 million barrels of oil per day (bopd) in additional production cuts starting May 1. As if to prove Sheffield’s foresight, the three biggest contributors to the reductions are Saudi Arabia (500,000 bopd), the United Arab Emirates (144,000) and Kuwait (128,000). This latest round of cuts follows prior reduction pledges totaling 2 million bopd announced by the cartel last October.

Noticeably missing from the list of member countries committing to the new cuts is Russia, although the Putin government did announce in February that it would reduce its exports by 500,000 bopd.

In past years, the U.S. shale industry could have been expected to quickly ramp up production in response to the prospect of higher prices, as it did throughout the period from 2009 through 2019 when U.S. Shale had arguably become the swing producer on the global market. But constraints on capital influenced by the ESG activist investor groups, ongoing supply chain muck-ups, pipeline capacity constraints, shortages of steel and other raw materials and a tight labor market pretty much ensure that can’t happen in the current political and market environment.