Pushed by Saudi Arabia, the OPEC oil cartel said it will cut production by 4 percent starting today -- but $2-a-gallon gasoline in Massachusetts may not be the inevitable result.
In fact, US traders' immediate reaction was to push wholesale oil and gas prices down slightly, after the Energy Department unexpectedly reported the first net gain in US gasoline and oil inventories in six weeks and a big Texas refinery shut down by a fire and explosion Tuesday went back in service.
Many traders were also skeptical that the 11-nation Organization of Petroleum Exporting Countries, which pumps about one-third of the world's oil supply, can get members to avoid the temptation to cheat on production caps given current lucrative $35-a-barrel prices. Non-OPEC nation Russia is closing in on Saudi Arabia as the world's biggest producer. Iraq, an OPEC member that currently operates outside the cartel's production ceilings, said yesterday it is on track to push production this year 20 percent above levels before last February's US-led invasion, which could help further offset any OPEC cutback. Iraq is home to the world's second biggest oil reserves after Saudi Arabia. The cartel's move to throttle back supply also comes as demand for heating and transportation fuel normally dips in industrial nations during the April to June season.
Analysts said Massachusetts motorists now paying just under $1.75 a gallon for unleaded regular are unlikely to see prices either drop or soar immediately because of OPEC actions.
Global demand for oil is growing at its fastest rate in seven years, led by the United States and China.
''That fundamentally supports high prices, but there's an element of speculative frothiness that has intensified the price run-up we've seen in the past two months," said Jim Burkhard, director of oil market analysis for Cambridge Energy Research Associates in Cambridge.
But the plight of motorists facing some of the highest nominal prices at the pump in 25 years is becoming a hot presidential campaign issue.
Presumptive Democratic nominee Senator John F. Kerry blasted President Bush's administration over the OPEC move, saying Bush was failing to live up to promises he would ''jawbone" OPEC to keep output high. White House spokesman Scott McClellan said, ''It's important for producers not to take actions that hurt our economy."
But Kerry said Bush has ''sent a message to OPEC that his administration will continue to be complacent about our dependency on foreign oil." Kerry said to punish OPEC he would refuse to keep buying oil for the 700-million-barrel US strategic petroleum reserve.
''George Bush ran for president pledging to pressure OPEC to relieve high prices, but on his watch the problems have gotten worse and the solution has been surrender," Kerry said.
At Massachusetts gas stations, regular unleaded is now selling for an average of $1.74 per gallon, up from $1.69 a month ago and $1.67 this time last year, according to the American Automobile Association. Current prices are nearing the record high of $1.81 set Sept. 3. Nationally, regular unleaded prices range from a low of $1.61 in Oklahoma to a high of $2.12 in California.
Larry Chretien, executive director of the Massachusetts Energy Consumers Alliance, a Boston group that runs a heating-oil buyers' cooperative and promotes renewable energy projects, said he expects gas prices to stay high or rise this summer and said he can foresee $2-a-gallon home heating oil prices next fall. Home heating oil in Massachusetts is currently selling for an average price of $1.54 a gallon, according to the Massachusetts Division of Energy Resources.
''I just think we're in a new paradigm where demand is as high as refining capacity, and we have a pretty high price floor for this coming winter," Chretien said.
''We're simply consuming more oil than we ever have before," said Burkhard of Cambridge Energy Research Associates.
Worldwide oil consumption this year should jump by 2.1 percent to 80.2 million barrels per day, the biggest increase in seven years, according to the International Energy Agency.
What prevented a sudden wholesale price spike after the OPEC production cut announcement, however, was an Energy Information Administration report that US crude inventories rose by 5.7 million barrels to 294.3 million barrels, more than analysts expected and the highest storage since late August 2002.
''The crude numbers are looking healthy," said Justin Fohsz, a broker with Starsupply Petroleum Inc. in Englewood, N.J. ''OPEC agreed to cut output, but the news had been priced in yesterday. We are paying more attention to inventories."
Edward A. Silliere, vice president of risk management at Energy Merchant Corp., a New York broker, agreed that ''this was a surprise build in crude. That catches the market off-guard. A million-barrel-a-day cut by OPEC doesn't mean much if we're building stocks like this." In New York trading, prices for delivery of oil in May fell 49 cents to $35.76 a barrel.
Other analysts doubt the OPEC cutback orders will hold. PetroLogistics Ltd. of Geneva estimates that OPEC nations are already producing 1.2 million barrels a day more than their nominal quotas.
OPEC ''will keep up the charade as long as they can," said Marshall Steeves, an analyst with Refco Group Ltd. in New York. ''There will probably be no substantial cuts for the next few months."
Peter J. Howe can be reached at firstname.lastname@example.org. Material from Globe wire services was used in this report.