No president wants oil prices to skyrocket. Timing is particularly problematic, however, as consumer spending can exacerbate inflation concerns and hurt Americans’ wallets, just as consumer spending can fuel an economic recovery from Covid.
The US crude oil price reached $ 76.98 per barrel on Tuesday, a level not seen since November 2014, but fell to around $ 73.50. Gasoline prices, which lag behind crude oil, rose to a national average of $ 3.13 per gallon on Tuesday. AAA .. That’s an increase from just $ 2.18 a year ago when the pandemic was ongoing.
“Catching up”
The alarm bell is definitely ringing at the Biden White House.
A spokeswoman told CNN Monday that the government is “watching” the OPEC + negotiations and that the authorities are seeking a “compromise” that will pave the way for the group to increase production.
So far, the Biden administration has taken a hands-off approach with OPEC, unlike former President Trump, who is known for repeatedly blowing up OPEC because he was obsessed with tracking the financial markets and was unable to pump enough oil. I took it over.
Some analysts claim that the Biden team appeared to be flat-footed in the OPEC drama.
Helima Croft, Global Head of Commodity Strategy at RBC Capital Markets, said: “The Biden administration’s early warning system was disproportionate to that of the Trump administration. You may not have understood how important the OPEC meeting was. “
OPEC playing cards 180
But, given the stylistic difference to Biden’s over-the-top Trump, don’t expect OPEC-threatening all-caps tweets.
“You don’t do Twitter diplomacy,” said Croft, a former CIA analyst. “It’s a traditional playbook where you pick up the phone and ask.”
Trump’s interventionist approach continued in April 2020 when oil prices fell below zero for the first time. When Trump realized that clean oil prices were threatening employment in large Republican nations, he hit an incredibly shocking 180 and successfully promoted OPEC’s cut oil production.
“This was one of the most amazing revelations in modern energy diplomacy,” said McNally, a former energy actor under former President George W. Bush. “The archenemy of OPEC has become the master of trade by reducing production. It belongs to the human dogs. “
The situation in the energy market is no different today. After the collapse during the Covid outbreak, energy demands soar as Americans take to the skies and the streets.
But the offer can’t keep up. OPEC + continues to cut production that was discontinued last year. OPEC pumped 25.5 million barrels a day in May, a sharp drop from the 2019 average of 29.3 million barrels.
“Very low” oil reserves
Observers largely agreed that OPEC needed to produce more oil, but the group was unable to reach an agreement. What was supposed to be a one-day meeting was in distress three days later – no deals were to be seen. OPEC’s third producer, the United Arab Emirates, is arguing with Saudi Arabia and Russia over the structure of the agreement.
Goldman Sachs reported to its customers on Tuesday that the “large deficit” in the oil market is requiring an additional production of 5 million barrels per day worldwide.
Without this offer, oil reserves around the world would collapse to “very low levels,” the Wall Street banks warned.
Against OPEC +, Biden can confidently argue that very high oil prices are not good for everyone. At some point people will stop traveling so much. It could encourage even more motorists to replace their gasoline SUVs with electric vehicles.
As Vice President of former President Obama, Biden knows exactly how these talks are going. In 2011, as the war in Libya intensified, Obama urged OPEC to increase production.
“We have had a lot of conversations with big oil producers like Saudi Arabia and told them that the economy is stagnating due to rising oil prices, which is not good for them. “Obama told a television station in Detroit at the time.
Why US Slate Won’t Come To The Rescue
Ten years later, Biden believes the US still desperately needs OPEC, even though US oil production has skyrocketed under both Obama and Trump.
Supported by the shale revolution, domestic oil production reached a record level of 13.1 million barrels per day in March 2020. However, the pandemic hit a US flaker. Demand collapsed when people stopped flying and driving. When a spectacular oil price war between Saudi Arabia and Russia made things worse.
Although the US economy is booming, US oil production has fallen by around 2 million barrels a day from the record level last year.
Fracker’s slow rebound reflects the role of Wall Street. Investors are demanding that US shale companies finally exercise discipline ten years after the enormous sums of money were destroyed. If they suddenly chase a higher price, their stock price will be penalized.
“Slate cannot come to the rescue and needs OPEC to prevent uncontrolled prices,” said RBC strategist Croft. “In 2015 people wrote an obituary for OPEC because of slate, but now OPEC is in the driver’s seat.”
What about the climate crisis?
Biden’s demand for more oil production by OPEC is cumbersome given his government’s focus on the climate crisis. Environmental activists want to reduce oil production, not increase it.
“If Biden demands more power, it will upset environmentalists,” said Greg Barriere, chief US policy strategist at AGF Investments. “At the moment I don’t know Biden’s simple answer.”
So it may not be fair, but Republicans see an opportunity to attack Biden to promote clean energy.
“When millions of Americans travel this holiday weekend, they feel the cost of Biden’s pumping policy,” said Republican President Rona McDaniel. Tweet on the weekend.
Biden has to balance his lofty climate ambitions with the difficult truth that the U.S. economy is still heavily dependent on fossil fuels, let alone the chance for re-election.
“The tough policy of the energy transition is clearly visible,” said Croft. “Nobody said it was easy.”
Comments are closed.