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Gas prices likely to rise following cut in oil production

Joe Raedle
Getty Images

An increase in oil prices is likely a precursor to higher gas prices over the holidays.

Following an agreement by OPEC, the Organization of Petroleum Exporting Countries, last week to cut global oil production by 1.2 million barrels per day, the price of crude oil rose to $55 per barrel, a 16-month high, as Yahoo News reports.

AAA reported a seven-day increase in national average gas prices which reached $2.18 per gallon Monday. That is a five-cent per gallon increase from last week.

OPEC’s cut in production is to take effect Jan. 1 and is meant to re-balance the global oil supply and raise prices, according to a press release from AAA.

As of Monday, the U.S. Energy Information Administration, reported average regular unleaded gas prices  of $2.21 per gallon, which is about 15 cents higher than a year ago, and average diesel fuel prices of $2.48 per gallon, which is just over 10 cents higher than a year ago.

In a press release Monday, GasBuddy.com, an online fuel price monitor, reported that the OPEC cut was larger than expected andPatrick DeHaan, senior petroleum analyst at GasBuddy, tells motorists to expect a nearly countrywide increase over the coming weeks.

“As I wait for the oil price balloon to burst, the rally in oil prices will lead to higher gasoline prices in much of the country over the next weeks. From the east to the west, average prices could rise 5 to 15 cents per gallon in the week ahead, so motorists in nearly all communities should plan accordingly,” DeHaan said in the release. “OPEC seems to be taking the role of the Grinch this holiday season; the era of low oil prices may be over for now.”

DeHaan doesn’t expect gas prices to rise to the $3 per gallon range because while the cut in oil production was meant to balance supply and demand, he believes the rally in oil prices is like a balloon that is filled with too much air and therefore will soon pop as the market corrects itself.