J.P. Morgan Global Commodities Research recently reported that Russia’s decision to reduce oil output is likely to drive the price of oil to $100 a barrel this year unless other suppliers take action. Russia’s government ordered companies to cut oil production to a target of 9 million barrels a day by the end of June to keep a pledge made to the OPEC cartel and its allies—down from 9.5 million barrels a day in late February. According to J.P. Morgan, U.S. gasoline prices could hit $4 a gallon by May and the price of Brent crude oil could hit $100 a barrel by September. Brent oil is selling for around $85 a barrel currently. Before the 2022 mid-term elections, President Biden ordered oil from the nation’s Strategic Petroleum Reserve (SPR) to be sold, adding more oil supply to the market, and bringing oil prices and gasoline prices down. Because he sold 235 million barrels in the reserve and has replaced only a few of those barrels, analysts estimate that the Biden administration can release about 60 million barrels from the SPR, which would offset about four months of Russia’s reduction.

Add to that Ukraine’s attacks on Russian refineries that has GasBuddy calling for an increase in gasoline prices by as much as 15 cents a gallon. And any additional supply shocks, like unplanned outages at major U.S. refineries, GasBuddy warns, could push domestic gasoline prices above $4 a gallon similar to the warning by J.P. Morgan. Around 14 percent of Russia’s refining capacity has been shut down by Ukrainian drone attacks. Russia has banned gasoline exports for six months while increasing imports from neighboring Belarus in March to address possible fuel shortages. Russian exports of products like gasoline and diesel are due to drop 30 percent to 1.2 million barrels per day in April. According to AAA, gasoline prices averaged $3.536 a gallon on April 1—6 percent higher than the previous month and 1 percent higher the same time last year.

Also affecting world markets is Mexico’s state-run oil company, Petroleos Mexicanos (Pemex), cutting oil exports over the next few months. It canceled contracts to supply refiners in the United States, Europe and Asia, diverting supplies to Mexico’s domestic refiners. Mexico on average exports about 600,000 barrels a day of Maya crude oil. The country’s suspension of exports comes as the Organization for the Petroleum Exporting Countries and its allies maintain oil production cuts to keep oil prices up. European demand for oil has been stronger than expected this year despite its push to electric vehicles, which has also helped to drive up oil prices.

Sales of Electric Vehicles Are Disappointing

Tesla, the U.S. major EV manufacturer, reported disappointing sales in the first quarter of 2024–down by 8.5 percent compared with the first quarter of 2023 and down 20 percent from the 4th quarter 2023. It delivered 386,810 vehicles in the first quarter of 2024, producing 433,371 vehicles. By comparison, Tesla delivered 484,507 vehicles in quarter 4 and 422,875 a year ago in quarter 1. The company delivered fewer cars to customers in the first three months of 2024 than Wall Street expected, marking the company’s first year-over-year sales drop in nearly four years. Tesla attributed the decline partially to the early phase of the production ramp of the updated Model 3 at the Fremont factory and factory shutdowns resulting from shipping diversions caused by the Red Sea conflict and an arson attack at Gigafactory Berlin.

Recently, Tesla announced price increases on certain models in China and the United States. Tesla warned a few weeks ago that customers should order vehicles soon to avoid higher pricing. The warning of higher prices could have brought in some extra sales at the very end of the quarter.

OPEC+ Production Cuts are Working

Brent oil has been trading above $80 for a while now, with OPEC+ production cuts continuing, a better-than-expected demand outlook and tankers being diverted due to the Red Sea Houthi attacks, taking longer to reach their destinations and increasing oil demand. It was the expectation of weak demand that kept prices low for months even as OPEC cut production by over 2 million barrels per day, and even as forecasts about U.S. shale pointed towards much slower growth this year. False hopes by forecasters such as IEA that indicated that oil demand would be in decline is turning out to be a false assumption as it had to raise its oil demand forecast for 2024 four times. With the higher demand, oil prices are increasing. Since the start of the year, Brent oil futures have gained 11 percent.

OPEC+ oil production cuts amplify the disruptive effects of unforeseen events on the market balance. The Red Sea situation where repeated Houthi attacks on ships have led to a massive reorganization of maritime transport has added at least 100,000 barrels per day to global daily oil demand, and Ukrainian drone attacks on Russian refineries have affected oil product supply. Had OPEC+ not cut production, the effect of these events could have been more muted. With the OPEC+ cuts, these other issues have the potential to push prices higher. Some forecasters now see a potential deficit, which is the result of weaker-than-expected supply and stronger-than-expected demand.

In 2023, increases in U.S. oil production kept oil prices at bay. U.S. oil supply that could offset OPEC+ cuts, however, showed a decline rather than growth in output in January due to harsh winter weather. Forecasters are projecting slowing growth in U.S. oil production this year compared to last year.


Oil prices are increasing and so are gasoline prices. Many factors are contributing including OPEC+ oil production cuts, Ukrainian drone attacks on Russian refineries, Houthi attacks on Red Sea shipping, Russia’s ban on gasoline exports, Mexico’s cut in oil exports, higher-than-expected demand for oil, lower sales of electric vehicles, and lower growth in U.S. oil production. The oil demand balance may result in a deficit due to weaker-than-expected supply and stronger-than-expected demand. That has made some forecasters see $100 a barrel oil by this fall and $4 a gallon gasoline even before then. The last time gasoline prices rose above $4 a gallon, President Biden sold oil from the emergency oil reserve to provide more oil supply to markets. But, as he has only refilled a small portion of the 235 barrels he sold, he only has about a quarter of that amount left in the reserve of the type of oil U.S. refineries need. His anti-oil and gas policies may come to haunt him before the election this year, if these forecasts hold true.

Print Friendly, PDF & Email