OPEC+’s surprise move to cut oil production by 1 million barrels a day is poised to boost U.S. fuel prices as President Joe Biden is expected to launch his re-election campaign. You have a limited range of options to answer.
1: Tap on Strategic Reserve
Biden may seek another release of oil from the Strategic Petroleum Reserve. The emergency reserve was created in the 1970s after the Arab oil embargo. It holds about 371 million barrels, according to Energy Department data, about half of the SPR’s capacity, largely because of a historic release of 180 million barrels last year to control the ‘increase in petrol prices as a result of the war in Ukraine.
The administration has made replenishing the SPR a priority, but it has been hampered by factors including maintaining two of the reserve’s four sites. Energy Secretary Jennifer Granholm has said the government can’t release oil from the cache and refill it at the same time, so an emergency sale would likely further delay replenishment plans.
Still, there’s nothing to stop another selloff, said Kevin Book, managing director of ClearView Energy Partners, a consulting firm in Washington. “President Biden has seized gas prices in a way that no other president before him has,” Book said. “If it continues like this, it will create possibilities for further interventions.”
2: Pressure on US producers
Don’t be surprised if there are more political attacks on the U.S. energy sector, which has ignored Biden’s repeated pleas over the past year to accelerate production increases and has been clamoring for record profits. Despite all the rhetoric, domestic oil production continues to grow slowly, with the industry reluctant to increase drilling and risk a repeat of previous boom-and-bust cycles.
“Because the United States cannot force the hand of OPEC+ members, the proverbial ‘whipping person’ will be the domestic oil and gas industry,” said Timm Schneider, an analyst who runs The Schneider Capital Group LLC.
The Energy Department sent a request for comment to the White House National Security Council. “We will continue to work with all producers and consumers to ensure that energy markets support economic growth and lower prices for American consumers,” a council spokesman said. “We focus on prices for US consumers, not barrels, and prices have come down significantly since last year.”
3: Return “NOPEC”
The White House hinted last year, in response to OPEC+’s unexpected decision to cut production by 2 million barrels a day, that it might support legislation that would allow the U.S. to take the dramatic step to sue the OPEC nations. The administration eventually backed away from supporting the bill – the “No Petroleum Export and Export Cartels Act” or “NOPEC” – amid warnings about the effects it could have on diplomatic relations and the industry of defense
4: Export of sidewalks
Other levers the Biden administration has at its disposal include limiting the export of gasoline and diesel. The White House considered that option last year as a potential means to tame pump prices, which hit an all-time high in June, but never pulled the trigger. Analysts said going ahead with the curbs could backfire and actually lead to higher prices in some parts of the US.
“If we go into the summer with gas at $4 a gallon, I think they would also rekindle consideration of product export restrictions,” said Bob McNally, president of consulting firm Rapidan Energy Group and a former House official White. “If this leads to an over-tightening of the oil markets, as they say in the Navy, expect heavy rolls.”
Requiring oil companies to store more fuel in the U.S. (mandatory storage requirements considered last year in response to previously low fuel inventories) is an option that could also return to the table if oil prices Gasoline prices remain high, McNally said.
5: Do nothing
Clapping is also very much an option, said David Goldwyn, former President Barack Obama’s energy envoy and now president of consultancy Goldwyn Global Strategies.
“This looks like a market-based cut from OPEC, which does not require a response from the administration,” Goldwyn said. “OPEC expects slow demand growth. This year’s congressionally mandated sell-off has not reached the market, and OPEC’s action is likely designed in part to counter that.”
–With help from Jordan Fabian.
Photo Credit – iStock.com/Bet_Noire
