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Analysis: Gas prices are at 7-year highs, and Biden can’t do much about it




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.

Energy diploma

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.

Prices at the pump also continue to climb. The average national price of regular gas rose to $3.24 a gallon on Thursday, from $2.18 a year ago; according to AAA.

Signals mixed from emergency oil tapping stack

Energy Secretary Jennifer Granholm this week recommends the Biden administration plan B and possibly Plan C

Granholm’s query FT Energy Transition Strategies Summit it would make sense if the barrels were emitted from the Strategic Petroleum Reserve, the nation’s emergency crude stockpile.

“It’s an agency that’s being dealt with,” Granholm said adding, “we’ll view it as a president.”

US oil prices fell briefly below $75 a barrel, following those comments from the SPR and the Biden administration tapped last month in the wake of Hurricane Ida.

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.”

Home heating shock barrier: cost of natural gas is up 180%

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).

Another delay in U.S. shale production would damage natural gas production, “sharply higher U.S. natural gas prices,” Goldman Sachs strategist noted. US natural gas prices are nearly triple over the past year, raising the risk of higher house heating and electricity costs in the coming months.

“We believe the action could prove unfavorably inflation,” Goldman Sachs strategist SPR wrote in a release.


Move to Existing Plan

Speaking to the FT on the issue, Granholm’s more extreme step in not eliminating abounding in oil.

“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.

The U.S.'s offshore oil infrastructure is aging. ' We don't know there's a problem while there' a problem. '

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.

Consumer prices climbed this summer in fastest annual pace since 2008. The risk is that big prices will pump out to increase inflation expectations among consumers and CEOs – a condition that can become self-fulfillment.

“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.

Big Oil is going to fight all weather rules for building a Better

Of course, an industry diploma with OPEC could be blocked with another priority in this case: climate diploma.

Biden joined Glasgow’s world leaders later this month at COP26, the culmination of a destination exploit fossil fuels to help the global economy weaning out fossils.

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.