Oil prices hit the highest levels since October 2014 this week, prompting renewed pledges from the U.S. Administration to do what it can to relieve prices at the pump for Americans. Oil traded even higher this week than it did in November 2021. Back then, the Biden Administration had announced the release of 50 million barrels of crude oil from the Strategic Petroleum Reserve (SPR) in a bid to lower high gasoline prices in a coordinated effort with other major oil-consuming nations.
After falling between the end of November and early December—thanks to the market selloff from the Omicron panic, not the SPR release—gasoline prices in the United States started rising again this year as international crude oil prices rallied on the back of tighter-than-expected supply and resilient demand despite the Omicron wave.
Rising crude prices are pushing the U.S. national average higher, AAA said on Thursday when the average price of regular gasoline was $3.32 per gallon.
The Biden Administration is once again scrambling for solutions, considering that the high price of gasoline is a red line for most voters. High gasoline prices and the highest annual inflation in America in 40 years have become a sensitive political issue for President Joe Biden. This year is also a mid-term election year, in which the Democrats will have to come up with solutions—and hope for global events to rescue them—if they want to keep control of the House and Senate.
“We’re going to continue to work on trying to increase oil supplies that are available,” President Biden said at a press conference on Wednesday.
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However, analysts see very few things that the Administration can do to directly affect international crude oil prices, which are the key driver of rising gasoline prices.
The Biden Administration stands ready to deploy its tools to address the latest increase in oil prices, a spokeswoman for the National Security Council said this week.
“We continue to work with producer and consumer countries and these steps have had real effects on prices and ultimately tools continue to remain on the table for us to address prices,” Emily Horne said, as quoted by Reuters.
“We will continue to monitor prices in the context of global economic growth and engage our OPEC+ partners, as appropriate.” Horne added.
This was on Tuesday. On Thursday, Brent Crude prices briefly traded at just over $89 per barrel, while analysts, investment banks, and even some OPEC officials believe that oil is headed to $100 a barrel.
“There are very few energy-related topics that voters can relate to better than gasoline prices, and oil is the heart of the gasoline price,” Kevin Book, managing director at research firm ClearView Energy Partners, told Bloomberg. Yet “oil market interventions are difficult,” Book added.
High oil and gasoline prices could lead to some demand destruction, but this doesn’t negate the fact that the ruling politicians in America and elsewhere will continue to face disapproval from voters who pay for expensive gasoline and food. A similar situation in many countries in Europe may also follow over record-high natural gas and power bills.
In the UK, for example, the worst is yet to come—the energy market regulator Ofgem is set to raise the so-called energy price cap as of April, throwing millions of households into energy poverty, with many people having to choose between eating and heating.
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According to a Guardian report citing research from think tank Resolution Foundation, the number of “fuel stressed” households in the UK will jump threefold to 6.3 million in April, after the energy price cap adjustment. With these forecasts, calls are multiplying for the government to do something about it.
From the UK to the U.S. and many other developed economies, politicians are hard-pressed to act to ease the burden on consumers. The problem is, they have few tools to influence the oil market ruled by the laws of supply and demand and OPEC+. Even OPEC+ cannot flood the market with oil: few members can pump more than they already do, and even those who can are doing so at the expense of reducing global spare production capacity.
By Tsvetana Paraskova for Oilprice.com
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The global oil market has already shrugged off the release of 50 million barrels from the United States’ Strategic Petroleum Reserve (SPR) while OPEC+ has also rejected repeated calls by the Biden Administration for it to raise production beyond agreed production policies.
The ultimate tool in the arsenal of the White House is to sue OPEC+ under the No Oil Producing and Exporting Cartels (NOPEC) Act of 2021. However, this threat is more of a hot air since OPEC isn’t a cartel. Moreover, NOPEC has only jurisdiction in the United States but no extraterritorial jurisdiction under international law.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London