President Joe Biden is working to do something about the sky-high gas prices Americans face. But it’s too late to reduce travel costs Thanksgiving.
All eyes in the oil market are on Biden to see if his administration will announce the release of the National Strategic Petroleum Reserve in an effort to control energy costs. But even if those extra barrels of crude hit the market today and send oil futures prices lower, it will most likely take another 7 to 10 days to fully show up at the pump. for consumers, said Patrick DeHaan, head of petroleum analysis at GasBuddy.
That means travelers will be stuck with high prices, as well as holiday driving expected to be near pre-pandemic levels.
Follow AAA data. More than 53 million Americans prepare to travel for the Thanksgiving holiday, with 90% choosing to travel by car.
Devin Gladden, an AAA spokesman, said by phone: “Drivers should expect pump prices to soar when they hit the road for the holiday season. “Anything short of increased supply immediately is unlikely to impact prices in the run-up to Thanksgiving.”
An eventual SPR issue will have the biggest impact on the price of crude oil, i.e. unrefined oil. It remains to be seen how strongly that will affect pump prices.
“Oil has a strong impact on spot gas prices, but not always there is a 100% relationship,” said GasBuddy’s DeHaan.
Still successful
But Biden’s approach worked to some extent, even though he didn’t act.
Biden, grappling with the political consequences of the biggest inflation spike in decades, spent a good month trying to bring down oil prices. And now, it’s working.
Since the end of October – when crude oil prices hit $85 a barrel and OPEC+ rejected his calls to increase production faster – Biden has threatened to release oil from America’s emergency reserves, demanding asked officials to investigate the US oil industry for pricing and promotion. other oil-consuming countries of the world to act. The regulator has even explored the export control option.
Rising gasoline prices pose a political risk to any US president, but Biden has more reason to worry: High energy costs, combined with rising prices for everything from meat to clothing to factory materials and autos, threatens the economic recovery from the pandemic and his ability to enact massive social spending legislation.
What’s remarkable about the president’s fight against high oil prices is that so far, his administration has not taken any real action. However, the speculation surrounding what it might do was enough to halt the upside momentum.
U.S. crude oil futures have fallen about 7% since Oct. 26 and traded below $80 a barrel on Thursday. Gasoline prices at the pump station remain near a seven-year high, but have stabilized for now. The president scored his biggest victory overnight when, after his virtual summit with Xi Jinping, China – the world’s largest oil importer – has announced plans to open its own strategic petroleum reserve for the second time this year.
His efforts may help lower prices in the short term. But of greater significance lies in whether the world’s two leading powers will come together to impact the oil market for the first time, and whether OPEC will see this joint action as a sign of closer cooperation between the two countries. the world’s two largest oil consumers.
“If there is a coordinated US-China release of SPR crude, that would be a new reality for OPEC,” said Robert Johnston, senior research scholar at the Columbia Center for Global Energy Policy. “Will they change their supply management strategy in the global market? It would be interesting for the United States and China to start working together, assuming this is not the end.”
At some point, though, talking might not be enough, even if Covid resurges this winter and a stronger dollar delivers a near-term drop in inflation. Biden will need to comply with the release of the US stockpile, or risk traders calling him a hoax.
Nor can he continue to open the faucet or the strategic reserve will quickly empty. And it is likely a coordinated strategic reserve issue that prompts OPEC and its partners to revise their plans to gradually increase output.
“If there is a synergistic Chinese and US SPR release, it could prompt OPEC+ to slow down their predicted 400,000 bpd monthly output growth rate,” said Johnston. OPEC+ will closely assess whether the release risks a return to global imbalances, especially if OPEC+ sees a return to US shale growth and reduced demand due to high prices. , he said.
The overall momentum of the oil market remains strong. Demand is recovering as the industrial economy booms and tourists take to the skies again. OPEC is struggling to meet its existing plan of modest monthly output increases, and the US shale industry continues to put profits ahead of output.
But it’s hard to ignore the US president.
Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, estimates that about three-quarters of the recent drop in oil prices is due to a potential SPR release by the Biden administration. John Kilduff, founding partner at Again Capital LLC, has a similar view.
“I would say half to 3/4 is the basis for an SPR release,” Kilduff said.
The recent rebound in US crude stockpiles and an increase in Covid cases are also helping to cool the recovery momentum.
For gasoline, the average American pays about $3.40 a gallon for the pump, the highest level since 2014, according to data from auto club AAA.
White House Chief of Staff Ronald Klain is blaming the oil industry.
“Oil prices are falling,” Klain said in a tweet Thursday. “Now, when will the industry go down gas price???? ”
While they await some concrete action from Biden, oil traders and investors, who have largely viewed the market as supply-demand, are grappling with sharp price swings due to recent events. comments from the authorities over the past month and a half. Some say Biden is likely just buying time and hoping that, as trading activity drops over the holiday, prices will drop on their own.
“A bark can be worse than a bite,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets. “The strategy to lower the market can have a bigger impact than the element of surprise.”
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