Has OPEC+ Dictated The Outcome Of The U.S. Mid-term Elections?

After months of constant criticism mainly by Republican politicians of adopting government policies that have triggered runaway inflation and skyrocketing fuel prices, President Biden in March announced an unprecedented release of 180 million barrels of crude oil from the Strategic Petroleum Reserve.  It was only the third time that a presidentially-directed emergency release had occurred in the history of the SPR. 

U.S. national fuel prices peaked mid-June above $5 per gallon, well above $4 per gallon that many experts consider as the true pain point for most motorists. Gas prices then embarked on a long descent for which the Biden administration, quite understandably, frequently took credit, with prices falling for 98 consecutive days.

To be fair, the SPR release was only part of the reason why fuel prices fell from $5.107 per gallon on June 13 to $3.771 per gallon on September 19. After all, a recent analysis by the Department of the Treasury estimates that U.S. SPR releases this year, along with coordinated releases from international partners, have lowered gasoline prices by up to about 40 cents per gallon compared to what they would have been in the absence of these drawdowns. The other reasons for the sharp fall were slowing crude demand occasioned by a global economic slowdown as well as lockdowns in China after yet another Covid-19 wave.

But as fate would have it, the recent announcement of a major oil production cut by OPEC+ might prove to be the ultimate party pooper for Democrats ahead of the midterm elections. 

Related: Natural Gas Prices In Europe Fall To A Three-Month Low

According to the Biden government, the decision on Wednesday by OPEC+ to cut production by 2 million barrels per day at a time when the global economy is grappling with the continued negative impact of Putin's invasion of Ukraine and Western sanctions, is an indication that the cartel is purposefully siding with Russia, and that oil and politics have become decidedly intertwined on a cartel level.  

President Joe Biden is now vowing to "consult with Congress" on ways to "reduce OPEC's control over energy prices," the NOPEC bill, once again, has come to the forefront. 

Source: Y-Charts

Rising gas prices

The timing of the cuts could not have been worse for the Democrats. Falling gas prices and voter enthusiasm over abortion access after the Supreme Court struck down the right to the procedure had managed to dull what had previously been a sharp Republican weapon and improve the odds for Democrats in the coming November elections. But crude and gas prices have now reversed course and climbed sharply after the OPEC+ announcement, a bad omen for Democrats considering that gas prices tend to have a huge impact on the American psyche.

Recent polling shows that most Americans continue to have a pessimistic view of the economy. Biden has consistently received negative ratings on economic issues. An NBC News poll last month found registered voters are evenly split on which party they preferred in Congress, but have backed Republicans by 19 percentage points on dealing with the economy. 

The passing of the historic climate bill dubbed the Inflation Reduction Act had added another feather to the Democrats' economic cap. IRA allocates $369 billion to renewable energy with the American Clean Power Association estimating it could more than triple clean energy production, cut emissions by 40% by 2030, and create 550,000 clean energy jobs. 

A major goal of IRA--the largest federal government spending increase on alternative energy in U.S. history--is to strengthen energy independence, reduce dependence on Chinese imports, and reinvigorate the industrial sector. 

The bill has received widespread acclaim and even bipartisan support and approval, but persistently high inflation, record-level interest and mortgage rates and now rising gas prices are likely to reverse the gains made by Democrats on the economic front.

U.S. 10 Year Treasury

Source: CNBC

Republicans have accused Biden of pursuing policies--including  a sharp slowdown in oil-and-gas leases on federal land as well as the $1.9 trillion Covid-19 relief package last year--that have undermined domestic energy production, driven up inflation and led to stagnant growth. GOP lawmakers say Biden is in denial about the pressures higher gasoline and grocery prices are putting on households.

"It is hard to square President Biden's boasts about the economy with the real economics Americans are facing," Rep. Kevin Brady (R., Texas) has told CNBC, warning of the dangers of high inflation and slowing growth aka stagflation.

Historically, the president's party has performed poorly in midterm elections. 

The U.S. Department of Energy's (DOE) Office of Petroleum Reserves has put up a Notice of Sale of up to 10 million barrels of crude oil to be delivered from the Strategic Petroleum Reserve (SPR) in November 2022. But by then it might be too little too late to reverse the gas price trajectory with Goldman Sachs recently saying oil prices are headed back to the triple-digit level.

By Alex Kimani for Oilprice.com

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