The recent announcement of first-quarter oil output cuts by major producers has generated little concern among U.S. drivers. However, an extension of these reductions beyond March could potentially impact gasoline prices at the pump.

Voluntary Reductions

The Organization of the Petroleum Exporting Countries and their allies, collectively known as OPEC+, revealed their plans to implement voluntary reductions in crude production during the first three months of 2024. These reductions amount to a total of 2.2 million barrels and include both an extension of Saudi Arabia's existing voluntary output cut of 1 million barrels per day and Russia's 300,000 barrel-per-day reduction in crude exports.

Potential Impact on Oil Production

The upcoming decrease in OPEC+ oil production is expected to limit global inventory builds, possibly leading to drawdowns. Brian Milne, product manager, editor, and analyst at DTN, acknowledged that world consumption remains uncertain and will depend largely on global economic growth.

Market Reaction

Although the decision was met with some disappointment among traders, it is important to note that the announced cuts are voluntary and subject to adjustments based on market conditions. Consequently, U.S. oil and Brent oil prices experienced a significant decline on Thursday.

Impact on Gasoline Prices

Despite this development, consumers need not worry about an immediate surge in U.S. gasoline prices. According to Patrick De Haan, head of petroleum analysis at GasBuddy, the OPEC+ decision does prevent prices from falling below the sub-$3 level on a national average.

Current Gasoline Price Trends

As of late Friday morning, the average price for regular unleaded gasoline in the nation stood at $3.241 per gallon, down 19.4 cents from one month ago. This continues a downward trend spanning 10 consecutive weeks, as reported by GasBuddy.

Timing of Output Cuts

It is worth noting that the output cuts will occur during the "weakest" period of the U.S. driving season, specifically in January and February. Therefore, this timing alleviates concerns among drivers regarding potential disruptions or price volatility.

Overall, while U.S. drivers need not be overly concerned about the first-quarter oil output cuts, a potential extension of these reductions could spell trouble for gasoline prices at the pump. However, for now, there is no immediate cause for alarm.

Gas Prices Outlook for 2024

U.S. crude production has been breaking records, leading to an increase in inventory levels. As a result, retail gasoline prices are expected to be limited in their gains early next year.

Typically, gas prices hit their lowest point between Thanksgiving and Christmas, but it is unlikely that prices will drop below $3 a gallon.

The period from mid-January to early February presents another opportunity for prices to potentially dip below $3, based on the national average.

However, after this window, there will be a seasonal upswing and refinery maintenance. Therefore, the chance for low gas prices will close around Valentine’s Day.

From mid-February to late spring, gas prices tend to rise between 35 cents to 85 cents per gallon. This increase is driven by higher fuel consumption as the market approaches the transition to summer gasoline. Additionally, as Americans start to venture out in March and April, there is an uptick in fuel demand.

During this time, the impact of the Saudis and the OPEC+ production cuts will become more apparent. If the Saudis extend their output cuts beyond March, there may be a significant increase in gas prices.

However, despite these factors, there is a forecast that gasoline prices in 2024 will be more affordable compared to 2023.

GasBuddy had previously predicted an average gasoline price of $3.49 per gallon for this year. Currently, the yearly average is close to that at around $3.54 per gallon.

The wildcard in all of this is how OPEC will manage oil production. Will they deviate from their tight control over supply, or will the Saudis decide to increase production?

Currently, more than 70,000 gas stations in the U.S. are selling gas below $3 per gallon, with $2.99 being the most common price and a median price of $3.09.