By Jessica Resnick-Ault
NEW YORK (Reuters) – Two months after U.S. President Joe Biden announced an unprecedented effort among major oil-consuming economies to work together to drive down fuel prices, prices are again approaching multi-year highs. And Biden has few options to stop the rally.
Global benchmark Brent crude rose above $84 a barrel on Wednesday and leading analysts predict oil could rise above $100 a barrel in the first quarter. [O/R]
Biden led a coordinated release of oil from strategic reserves with Japan, India, South Korea, Britain and China in November, which helped lower prices – although, in in the end, China did not participate.
Brent briefly fell below $70 a barrel, but the effects were short-lived.
Rising oil prices present a political headache for Biden and any US president, as the United States is the world’s biggest consumer of gasoline, burning about 9 million barrels per day (bpd) of fuel. Crude prices are about two-thirds of the price of gasoline, making the price of the commodity a significant part of consumers’ budgets.
Republicans point to climate-focused policies backed by Biden, a Democrat, for rising prices, but the reality is that the oil market is tied to global factors beyond the control of any American political party.
Investors bought oil expecting the Omicron variant of the coronavirus to have a limited effect on global economic activity. Currently, US pump prices are about 80 cents per gallon lower than their all-time high in 2008, but are expected to rise.
WHY ARE OIL PRICES RISING AGAIN?
Global oil demand has returned to pre-pandemic levels at around 99 million bpd, but supply is at least a million bpd less than that, according to the International Energy Association.
Economists say the combination of strong demand, weak investment and a lack of spare capacity has caused prices to rise. The Organization of the Petroleum Exporting Countries and its allies, including Russia, a group known as OPEC+, have consistently failed to meet targeted supply increases.
“OPEC+ remains committed to adding 400,000 bpd to the market each month, but our data suggests monthly additions are approaching 250,000 bpd,” Mike Tran, commodities strategist at RBC Capital Markets, said in a note to the media. clients.
U.S. production averaged around 11.3 million bpd in the second half of 2021, from a peak of around 13 million bpd at the end of 2019.
CAN’T BIDEN STILL PUT PRESSURE ON OPEC?
Biden joined his predecessors last year who at one time or another pressed OPEC to increase production, with varying success.
The president announced several measures to try to lower fuel prices in November. The White House, in collaboration with Japan, South Korea and India, announced a release of barrels from its strategic reserves.
Biden had also said China would be involved, but the country, the world’s biggest rough importer, said it would sell from its reserves on its own schedule.
The group cut its supply by a record 9.7 million bpd in early 2020 when the pandemic hit. It slowly restored production, but currently OPEC+ is still withholding over 3 million bpd of supply.
WHAT ARE BIDEN’S OTHER OPTIONS?
Biden could increase sales of the US Strategic Petroleum Reserve (SPR). However, this offer is limited and derisory compared to the size of the world market.
SPR crude inventories fell to 593 million barrels, their lowest level since November 2002.
Biden’s announcement in November was for the release of 50 million barrels of sales and loans, about half of the world’s one-day consumption.
The president could also consider a federal gas tax exemption; the federal gasoline excise is 18.4 cents per gallon.
In 2008, lawmakers floated the idea in response to a price spike that pushed gasoline prices over $4 a gallon — but because refiners can’t produce more gasoline quickly, such a decision would likely only stimulate demand, which would eventually drive up prices, economists argued.
(Reporting by Jessica Resnick-Ault; Editing by Heather Timmons, David Gaffen and Marguerita Choy)