New York (CNN Business)President Joe Biden’s 2022 is off to a dreadful start. Prices at the pump could make it even worse.
Crude oil has already zoomed back to two-month highs. Gasoline prices, which move with a lag, have stopped their muted decline. And they’re starting to creep higher again.
The energy resurgence is only going to add to the economic anxiety gripping the United States and sinking Biden’s poll numbers.
“This is a terrible situation. Gas prices are in this political danger zone,” Helima Croft, head of global commodity strategy at RBC Capital Markets, told CNN.
The White House knows how deeply unpopular high gas prices are. That’s why Biden took sweeping action in November to intervene. The administration announced the largest-ever release of emergency crude reserves from the Strategic Petroleum Reserve (SPR) in US history.
The return of $85 oil will pile pressure on Biden to act once again — and the administration is signaling further action is on the table.
“Tools continue to remain on the table for us to address prices. This is something the administration is continuing to watch and monitor very closely,” a White House official told CNN.
Yet presidents have limited power to lower gas prices. While Biden has options, they all have drawbacks.
“They are in a difficult situation. There are no magic wands here,” said Bob McNally, president of consulting firm Rapidan Energy Group and a former energy adviser to former President George W. Bush.
Emergency release Part II
If crude prices stay elevated, Biden may be tempted to take another stab at knocking them down.
“President Biden has taken strong, aggressive measures to combat these challenges,” the White House official told CNN, citing the SPR release from November.
And the official reiterated that Biden “stands ready to take additional action, if needed,” to maintain adequate supply, echoing what the administration said last fall.
Located along the US Gulf Coast, the SPR is an underground series of caverns that contains crude stockpiled for break-the-glass moments like hurricanes or wars.
Biden’s SPR intervention was met with mixed results.
Oil prices began tumbling in early November on rumors that the White House would step in. By the time of the announcement, crude was down about 10% from the highs.
Days later, US crude crashed to as low as $65.76 a barrel on December 1. But that late November selloff was driven by Omicron fears, and it proved short-lived. Crude is now trading at around $85 a barrel, up 29% from that December 1 low.
The gas price relief was fleeting.
After hitting a seven-year high of $3.42 a gallon in early November, the national average briefly dropped below $3.30 a gallon. But they have since rebounded to $3.31 a gallon — and the market is signaling further gains ahead. Gasoline futures are now trading at two-month highs.
Some energy analysts say the SPR failed to work, while others argue energy prices would have been much higher if Biden hadn’t acted.
Croft, the RBC strategist and a former CIA analyst, said the SPR release may have succeeded as a diplomatic tool used to get oil producers to add supply. She noted that despite Omicron, OPEC and its allies, known as OPEC+, went ahead and increased oil production in December.
Still, barely two months after Biden’s historic intervention, he’s under pressure to tap the SPR again. That underscores the SPR’s limitations.
After all, emergency reserves have a finite number of barrels. Washington can’t simply release barrels every month.
A more extreme step
In November, nearly a dozen Congressional Democrats urged Biden to ban US oil exports, a dramatic step that some Wall Street banks and industry experts have warned would badly backfire. At least one powerful official inside the administration backed that idea: White House chief of staff Ron Klain.
As CNN reported last fall, the soaring price of gasoline so alarmed Klain that at one point he suggested halting US exports.
However, Energy Secretary Jennifer Granholm later told oil executives in December that the administration is not considering an oil export ban.
“I’ve heard you loud and clear, and so has the White House,” Granholm told the National Petroleum Council in December. “We wanted to put that rumor to rest.”
McNally, the energy consultant, said an export ban would be a disaster.
“They may be looking for stronger medicine but this would be poison,” McNally said.
That’s because oil is a globally traded commodity and US gas prices are set by Brent, the world benchmark. If the world lost access to US barrels, Brent prices would likely rise due to less supply.
Make nice with MBS
Energy diplomacy may be Biden’s best option for driving down gas prices. Only OPEC has enough firepower to quickly add barrels on the market.
“We are in a supply crunch engineered by OPEC+,” said Claudio Galimberti, senior vice president of analysis at Rystad Energy.
The administration’s efforts to get OPEC to open the spigots have not been helped by the tense relationship between the United States and Saudi Arabia, the cartel’s kingpin.
Making nice with Saudi Crown Prince Mohammed bin Salman, known as MBS, could help. But that would come at a cost given that US intelligence found that MBS approved the operation to capture or kill journalist Jamal Khashoggi in 2018.
“Does Biden have to pick up the phone and call MBS as opposed to outsourcing it to his lieutenants?” RBC’s Croft asked. “None of this is easy.”
Meet with Big Oil
In recent months, the Biden administration has begun to take a friendlier tone with a key group in this inflation crisis: the US oil industry.
During Granholm’s virtual address to the National Petroleum Council last month, the Energy Secretary asked the industry to ramp up production to meet demand.
“Consumers, as you know, are hurting at the pump…You clearly have some important tools to alleviate that pain,” Granholm said. “Please, take advantage of the leases you have. Hire workers. Get your rig count up.”
Granholm added: “I do not want to fight with any of you.”
In theory, Biden could take this a step further by meeting with oil CEOs at the White House and considering requests to cut red tape (or at least promise not to add more regulation).
However, Biden ran on the most aggressive climate agenda in US history, and climate scientists say the world needs less, not more, fossil fuels. Cozying up to Big Oil isn’t really an option for this White House.
Wait it out
There is a lot of uncertainty over how much higher gas prices will go.
Much will depend on the path of the pandemic and supply. But the good news is that as long as Russia doesn’t invade Ukraine and disrupt gas supply, some energy analysts expect gas prices will cool off later this year as supply meets demand.
McNally said his advice to Biden would be not to overreact to rising prices.
“Stand pat. Don’t commit mistakes,” he said. “Wait for prices to come down.”
Of course, presidents with low approval ratings in election years aren’t known for their patience.
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