Rising gasoline prices in the US are starting to put pressure on the Biden administration in the run-up to next year’s election.
The national average for regular unleaded gasoline was trading at $3.87 per gallon on Monday, up almost 30¢ from a month ago and within reach of the $3.94/gallon seen at this time last year, according to the American Automobile Association (AAA).
Analysts say attention spikes in the White House when gasoline prices approach $4/gallon or West Texas Intermediate (WTI) crude pushes above $80 per barrel. A stronger oil market, supported by Opec-plus production cuts, has seen WTI climb from $68/bbl at the end of June to more than $81/bbl on Monday.
Diesel, meanwhile, has risen to $4.38/gallon from $3.84/gallon a month ago.
“Any White House only has two kinds of modes when it comes to oil prices: oblivious or panicked,” said Bob McNally, president of consultancy Rapidan Energy and former senior director for international energy for the White House National Security Council.
Elevated oil and gasoline prices have put the Biden administration on “alert” mode, but it is hoping that seasonality and bearish sentiment over China’s economic troubles will not push prices higher, he said.
“What would really flip them into true panic mode is where oil prices kept rising,” with WTI at $90-$100/bbl and gasoline consistently at or above $4/gallon, McNally added.
Last summer, US gasoline and diesel prices rose as high as $5/gallon. That spike occurred in the run-up to the midterm elections in November and stoked tensions with Opec-plus, culminating in a public spat between the Biden administration and Saudi Arabia after the producer group agreed to cut output in October.
Whether US Gulf refineries can get through hurricane season without major disruptions will also factor into gasoline prices, which usually tail off into the fall after the summer driving season, said AAA spokesman Andrew Gross.
Another worry, according to Patrick DeHaan, head of petroleum analysis at tech firm GasBuddy, is that any upward pressure on diesel, gasoline and other petroleum products could pass through to other products and services and create fresh inflationary pressures — another big concern for the administration.
SPR Tool
To tame oil prices last year, the Biden administration released large volumes of crude from the nation’s Strategic Petroleum Reserve (SPR). In March 2022, one month after Russia’s invasion of Ukraine, it announced the largest-ever sale from the reserve of 180 million barrels.
The use of the SPR as an oil market management tool irritated some Opec-plus producers. But that tactic doesn’t appear to be an option this time around. “They can’t even figure out if they are going to refill it or not,” said a Washington energy lobbyist.
SPR stocks currently stand at 350 million bbl. Since the US is a net exporter of oil, it could technically draw down the SPR even further, but that would reduce its cushion to deal with any major supply disruptions.
In response to high oil prices, the US Department of Energy in early August canceled a planned purchase of 6 million bbl to start replenishing the SPR, saying it would still use targeted exchange returns and the cancellation of planned sales where drawdown is unnecessary.
Limited Options
The administration’s other policy options appear limited. US oil production is rising, with the US Energy Information Administration forecasting output of 12.8 million barrels per day in 2023 and 13.1 million b/d in 2024, which would both be annual records. But there are limits to that impact.
“If the Saudis are cutting 1 million b/d, a hundred thousand here and there isn’t going to make a difference,” said DeHaan. “There’s really no way US producers can fill the gap.”
In the event that oil prices continue to rise, the Biden administration’s best option would be to call on the Saudis to ramp up production, according to McNally. “I don’t think that’ll work, but that’s their best option,” he said.
Since last year’s flare-up, relations between Saudi Arabia and the US have eased, and Washington has avoided pressing Riyadh on oil policy. In talks last month between senior Saudi and US officials, including National Security Advisor Jake Sullivan and Brett McGurk, the top White House official for Middle East policy, oil supply issues were not discussed, sources told Energy Intelligence.
The Biden administration is pushing for a broader strategy reset of US-Saudi relations, including a hard-to-get Israeli-Saudi normalization deal. Reports on Monday indicated that Biden was considering meeting with Saudi Crown Prince Mohammed bin Salman on the sidelines of next month’s G20 summit in New Delhi to discuss such a deal.
“There’s a broader negotiation with Saudi Arabia under way and they really want to keep the Saudis on side,” said McNally.
If oil prices continue to rise, analysts say the Biden administration could also urge Congress to tweak federal gasoline taxes — but this is considered an unlikely scenario given the hyperpartisan atmosphere in Washington heading into an election. The administration could also extend emergency fuel waivers to allow E15 gasoline that uses a 15% ethanol blend, although that measure would have a limited impact at the pump.
Other than that, the administration could further ease oil sanctions on Venezuela or relax enforcement of sanctions on Iran’s oil exports as Washington and Tehran engage in indirect talks aimed a de-escalation.
Wait and See
More likely, analysts say, the administration will wait in the hope that oil markets ease.
“It doesn’t seem like they think it’s a big deal. Or more precisely, they think it’s a normal summer spike and prices will recede in the fall,” said the Washington lobbyist.
McNally echoed that sentiment.
“There’s a lot of skepticism [that prices will continue rising],” he said. “I think right now, they [the Biden administration] are alert, they’re concerned, but they’re not hitting the policy button because they’re kind of hoping it’s just going to go away.”
As the cycle for next year’s November elections kicks into gear, Republicans are likely to continue to use inflation, the economy and energy prices as a stick against Biden. Critics point to the Biden administration’s rhetoric on moving away from hydrocarbons and oil, blocking new production on federal lands, killing the Keystone pipeline and other policies as leading to higher prices.
