Gas $3 also poses serious political problems for US President Joe Biden, although the blame is largely ignored by Republicans. Voters don’t like high prices and, fair or not, criticize whoever is in the White House.
“Increasing concern in the White House about dangerous running prices that could aim for global recovery,” Helima Croft, head of commerce at RBC Capital Markets, wrote in a note to clients this week.
The Biden administration said “all media instruments” are under consideration to combat high energy prices.
Unfortunately, industrial sources say the media is now pretty limited. There are also some options under consideration that can actually make the situation worse.
The plan was to root for OPEC and its allies, OPEC+ acquaintances, to root out the spigots. Not that well, but at least so.
OPEC+ announced on Monday it would gradually increase supply to the markets, while avoiding a hearing called by the White House to dramatically pile up production.
OPEC+ sent US crude over $79 a barrel for the first time since November 14.
Signals mixed from emergency oil tapping stack
Energy Secretary Jennifer Granholm this week recommends the Biden administration plan B and possibly Plan C
“It’s an agency that’s being dealt with,” Granholm said adding, “we’ll view it as a president.”
However, the Energy Department later walked back Granholm’s words, saying “there is no immediate plan” to tap SPR. After that declaration, crude was back up to $79 a barrel.
“bring squirt gun to fight”
In this case, industrial sources are skeptical that the SPR strike unilaterally would give a significant dent in large energy prices.
“It would be a big mistake, like bringing a squirt gun to a fight,” said Bob McNally, vice president of consulting firm Rapidan Energy Group. “I need an engine. SPR is too small.”
As a matter of fact, Goldman Sachs said the 60 million barrels of oil SPR release will only be “a little help” to the Wall Street bank’s cutting-edge forecast of $90 Brent crude last year at just $3.
“The time frame for such an SPR solution is amazing,” Goldman Sachs strategist Goldman Sachs said in a note to customers on Wednesday. “Although oil prices have increased this year, they have not raised historically.”
Goldman Sachs Group noted that after 2000 past sales reported an average price of $93 a barrel for Brent, adjusted to inflation.
Another problem: If the SPR works by releasing barrels to dispel oil prices, it could discourage US oil companies from sweeping oil production. (U.S. oil productivity remains below pre-Covid levels – as prices have fully recovered).
“We believe the action could prove unfavorably inflation,” Goldman Sachs strategist SPR wrote in a release.
Move to Existing Plan
“That’s not only a tool we used, but it’s a tool,” Granholm said. “We have an intergovernmental process going on. As [White House Press Secretary] Jen Psaki said all the tools are on the table. But some things are more readily available than others.
However, the Energy Department also walked back, saying that there is no immediate plan to banish oil exports.
Some oil guards are skeptical.
“I’m not sure Jennifer Granholm is a complete gangster. Telegraphing concerns over the management of oil and gas prices — and the broader energy crisis globally,” Croft, an RBC analyst, told CNN in an interview.
McNally, a former energy adviser to former President George W. Bush, sees a 5% to 10% chance that Biden is committed to the long-term process of preventing oil export — a decision he strongly opposed.
“That’s really disastrous and counterproductive,” McNally said.
The problem is that the oil market is a global trade – and U.S. gas prices across Brent are set to be the world’s benchmark. If the world suddenly lost access to U.S. oil, Brent crude prices would likely move higher due to weaker supply. US smelters also require access to exotic oil for gas, diesel and jet fuel. The US can’t rely on shale alone.
That means an export ban can backfire on US drivers.
“Ironically, boiling was primarily for the gasoline and choice product,” wrote Goldman Sachs strategists.
Inflation jitters meet the weather
The club, supported by high energy prices, only wanted to provoke inflation pressures.
“This is closely observed. Individual inflation prospects build around recent experiences, such as those in gas station or stores,” Roger Ferguson, former vice president of the Federal Reserve, told CNN.
All of this relates to White House policy A: Persuading OPEC+ to more aggressively sideline revenue production at the height of Covid.
Of course, an industry diploma with OPEC could be blocked with another priority in this case: climate diploma.
Behind the scenes, Biden is likely to force OPEC officials to drive more fossil fuel production. It is another reminder of how tricky the energy transfer will be — and how clean it stays addicted to oil.