For California consumers and businesses still reeling from last year’s bout with high gas prices, the latest oil market report from the International Energy Agency (IEA) offers little comfort.
The group – supported by 42 countries aiming to promote energy security through cooperation, policy, and analysis – warns that a surprise and substantial oil production cut recently announced by OPEC could create challenges for meeting global energy demands this year.
“Our oil market balances were already set to tighten in the second half of 2023, with the potential for a substantial supply deficit to emerge. The latest cuts risk exacerbating those strains, pushing both crude and product prices higher.”
While IEA and other analysts caution that uncertainty exists in the global economy, making oil prices difficult to predict, the episode demonstrates how policies curbing domestic oil production cede influence over energy markets to foreign actors.
As The New York Times reports:
“Oil prices surged, and U.S. officials voiced their displeasure a day after OPEC members announced substantial cuts in production, a move that reaffirmed Saudi Arabia, the group’s leader, as a headstrong giant in the oil market … The abrupt move showed that Saudi Arabia is determined to be proactive to keep prices high.”
To be sure, California oil production is a small fraction of OPEC’s, but the Golden State’s potential to support its own energy security is not negligible.
Governor Newsom’s policies have resulted in a roughly 25% reduction in oil production over the past four years, leading to a cumulative loss of nearly 90 million barrels of oil during his administration. President Biden’s release of 180 million barrels of oil from the nation’s emergency stockpile was widely credited with moderating gas prices last year. California merely maintaining 2018 production levels would have certainly helped the cause.
Instead, the state is retreating from global oil markets – helping put OPEC in the driver’s seat on gas prices. In light of the OPEC decision, several top investment banks predicted that crude prices could hit $100 a barrel and energy analysts warned that the cuts will ensure fuel prices increase for the busy summer travel season.
And the economic impact won’t stop at the pump. As The Washington Post reports:
“Rising oil prices could complicate efforts by the U.S. Federal Reserve and other central banks to get inflation under control, analysts said. Higher fuel prices — diesel in particular — would weigh on consumers’ pocketbooks and jack up costs for the shipping networks that underpin global supply chains.”
Put more succinctly, one global energy analyst told CNN: “I think OPEC is reawakening the inflation monster.”
Newsom’s blind crusade to move California beyond oil makes the state more dependent on imports for basic energy needs – and more vulnerable to the whims of foreign regimes that don’t have the state’s economic interests at heart.