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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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There’s No Immediate Cure For Sky-High Gasoline Prices

  • U.S. gasoline prices continue to set new record-highs day after day.
  • Everything that the Biden Administration has done thus far has failed to curb rising prices.
  • Experts believe that high gasoline prices are likely to persist for the foreseeable future.

Since gasoline prices started surging at the end of last year, the U.S. Administration has been saying that it would consider and potentially use every tool at its disposal to lower prices at the pump. The problem for the Biden Administration—and for U.S. drivers—is that there isn’t a short-term solution to skyrocketing gasoline prices that set new record-highs day after day.   Every tool at Biden’s disposal has its own drawbacks and political consequences, and every move the Administration is studying is unlikely to dent gasoline prices too much, analysts and White House insiders say.

The only “solution” to record-high gasoline prices is not one U.S. policymakers and consumers would want—a recession. And this is now a distinct possibility, although not a base-case scenario for most analysts. 

Still, chances of a recession are rising, investment banks and analysts warn. 

JPMorgan Chase, for example, warned just this week that a “hurricane” may hit the economy with the Fed starting to remove liquidity from the system and the Russian invasion of Ukraine that could send oil prices to $150 or even $175 per barrel. 

“Right now, it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle this,” JPMorgan Chase CEO Jamie Dimon said at a financial conference this week, as carried by CNBC.

“That hurricane is right out there, down the road, coming our way,” Dimon added, warning, “You’d better brace yourself.” 

Yet a recession is not inevitable, says Goldman Sachs, for example. 

“We believe fears of declining economic activity this year will prove overblown unless new negative shocks materialize,” Goldman Sachs economists wrote in a report dated May 30. 

“We continue to forecast slower but not recessionary growth, with a trade-related rebound to +2.8% in Q2 followed by +1.6% average growth over the following four quarters,” Goldman Sachs said.

If the U.S. avoids a recession and a subsequent decline in oil consumption, the Administration doesn’t have the tools to influence the price of oil, which is the single largest determinant in U.S. gasoline price trends. 

Related: Citi: Oil Is Overvalued By $50 Per Barrel

Sure, the White House praised OPEC+, and Saudi Arabia in particular, after the group, including Russia, decided to accelerate the monthly production increases to 648,000 bpd in July and August, from the 432,000 bpd monthly hike so far. 

“We recognize the role of Saudi Arabia as the chair of OPEC+ and its largest producer in achieving this consensus amongst the group members. The United States will continue to use all tools at our disposal to address energy prices pressures,” White House Press Secretary Karine Jean-Pierre said on Thursday. 

Yet, the Administration still doesn’t really have “tools” that would cut gasoline prices substantially in America. Global supply is constrained because Europe is now sourcing growing volumes of seaborne non-Russian crude, global refinery capacity has shrunk by a few million bpd since COVID, and fuel inventories in the U.S. are at multi-year lows.

Gasoline prices are the single biggest obsession at the White House right now, with aides considering various measures—from limiting oil exports to easing environmental rules for gasoline content—none of which are going to materially bring down prices at the pump.  

“We’re going to take every action that we can that will make a meaningful difference,” a White House official told Politico this week. But the official added, “While understanding and dealing with the reality that global oil prices and gas prices are controlled by much greater forces than any one person.” 

Each option the Administration has been studying comes with its own complicated and potentially painful political drawbacks and tradeoffs, and those options may not even lead to lower gasoline prices, sources with knowledge of the discussions at the White House told Politico.  

“What they have is a whole bunch of 10-cent policies,” Claudia Sahm, a former Federal Reserve economist and member of the Obama administration’s Council of Economic Advisers, told Politico. 

Meanwhile, the national average gasoline price hit another record at $4.715 a gallon on Thursday. That’s up from $3.041/gal at this time last year. 

With less than $0.25 from $5.00, the national average could hit $5/gal around June 17, Patrick De Haan, head of petroleum analysis for fuel-savings app GasBuddy, said on Thursday. 

Gasoline at $5 will certainly be politically painful for the Biden Administration. Yet, the only short-term “fix” for this is a slump in oil demand through a recession—an even more painful outcome for the economy, employment, and consumers. 

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • Joshua Lee on June 04 2022 said:
    Oh I see why there are no comments this is a Brit owned co. No freedom of speech over there...
  • Mamdouh Salameh on June 05 2022 said:
    President Biden is swimming against the tide. In a tight and most bullish global oil market and a robust global oil demand, high crude and gasoline prices as well as other energy prices are here to stay well into the future. He should et the market take its course.

    The only solution is a long-term one meaning an immediate and extensive global investments amounting to $600 bn annually for the next ten years in expanding oil and gas production and refining capacities and this takes a minimum of five years to reach fruition.

    Even a harsh recession in a tight market like the current one will fail to destroy enough demand to bring down prices because beyond a certain point demand destruction starts to seriously affect the functioning of the global economy.

    Furthermore, US shale oil is a spent force. Neither WTI prices of $120 or $200 or $500 nor rising oil rigs will prompt it to rise.

    And Whilst OPEC+ raised its production to 648,000 barrels a day (b/d) for both July and August, this isn’t a real rise. It is merely offsetting deficits from previous months so as to maintain a monthly average of 400,000 b/d.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Dennis on June 06 2022 said:
    Black k rock star blocking union pacific? that's what is rely going on them and Biden is invested in lithium stocks . so they want to mKe it happen by robbing everyone

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