AUBURN HILLS, Mich. (WXYZ) — Over the weekend, the Organization of the Petroleum Exporting Countries (OPEC) announced it would slash oil production by more than 1.6 million barrels a day, starting in May and running through the end of the year. The move will likely drive up gas prices worldwide, including in the U.S.
How much of an impact will it have in Michigan? That's a question many are asking as prices are expected to spike already going into the summer.
A mother of one and post office worker Ariel Freeman remembers last summer when average gas prices in Michigan were around $5 per gallon.
"There is a lot of different things you have to cut back on, like you can't do the things you want to do. Inflation is terrible," Freeman said.
But folks like Ariel may have to brace themselves for this summer as pain at the pump could return, with global oil production set to reduce from next month.
"So, OPEC+ are worried that the banking crisis, and the macroeconomic crisis inflationary risks could dramatically reduce the demand for oil later this year," Robert McNally from the Rapidan Energy Group, said.
McNally says even though the U.S. sees a high demand for gas during the summer, it peaks during winter for the rest of the world. Since this past Sunday's announcement about OPEC cuts, crude oil is already up by 6%.
"So how soon will we see gas prices here in the US go up?"
"We start the tracking right now, and if crude oil prices, in the month of April remain stronger, higher due to the OPEC+ cut then starting in May we should start to see higher pump prices," McNally said.
But the impact of higher gas prices goes beyond the pump. To understand the overall impact, I met up with Oakland University assistant professor Zeina AlSalman.
"When we spend more on gasoline, we are going to be left with less income on other goods and services," AlSalman said.
That also means prices on other goods could go up.
"It has an inflationary impact, things will be costly for businesses, so investment expenditures will decrease, and that's why it will lead to a recession or higher unemployment," AlSalman said.
"Who benefits from this?" I asked.
"No one benefits. We will have a bad impact on our economy because high unemployment and high inflation, what we call stagflation," AlSalman said.
But, not all is lost. Experts say eventually, the global oil market will balance out.
"Gasoline prices we pay at the pump are driven at a global market. We all are on this space mountain roller coaster ride, where crude oil volatility will remain high," McNally said.
As for short term solutions, he said we can't increase supply quickly, and there are no good options to quickly reduce demand or shield people from price volatility.
Now, AlSalman also says since 2008, the U.S. has increased its own oil production, which basically means the economy may not be impacted as badly as predicted, but in the meantime, the best thing folks can do, is to start budgeting.
