Explanation: Soaring oil prices leave limited options for Biden

NEW YORK, Jan. 13 (Reuters) – Two months after US President Joe Biden announced an unprecedented effort among major oil-consuming economies to work together to lower fuel prices, prices are once again approaching multi-year highs . And Biden has few options to stop the rally.

Global benchmark Brent crude topped $ 84 per barrel on Wednesday, and leading analysts predict oil could exceed $ 100 per barrel in the first quarter.

Biden spearheaded a coordinated release of oil from strategic reserves with Japan, India, South Korea, Britain and China in November, which helped push prices down – though, ultimately, the China did not participate.

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Brent briefly fell below $ 70 a barrel, but the effects were short lived.

Rising oil prices present a political headache for Biden and any US president, as the United States is the world’s largest gasoline consumer, burning about 9 million barrels per day (bpd) of fuel. Crude prices represent about two-thirds of the price of gasoline, making the price of the product a significant portion of consumers’ budgets.

Republicans are pointing fingers at climate-focused policies backed by Biden, a Democrat, for the price hike, but the reality is that the oil market is tied to global factors beyond the control of any American political party.

Investors bought oil with the expectation that the Omicron variant of the coronavirus would have a limited effect on global economic activity. Currently, pump prices in the United States are about 80 cents per gallon below their all-time high in 2008, but are expected to rise.

WHY HAVE THE PRICE OF OIL STILL INCREASED?

Global oil demand has returned to pre-pandemic levels at around 99 million bpd, but supply is at least one million bpd lower, according to the International Energy Association.

Economists say the combination of high demand, low investment, and a lack of spare capacity has driven up prices. The Organization of the Petroleum Exporting Countries and its allies, including Russia, a group known as OPEC +, regularly fall short of targeted increases in supply.

“OPEC + remains committed to adding 400,000 b / d to the market each month, but our data suggests monthly additions are approaching 250,000 b / d,” said Mike Tran, commodities strategist at RBC Capital Markets, in a note to customers.

US production averaged around 11.3 million b / d in the second half of 2021, up from a peak of around 13 million b / d at the end of 2019.

CAN’T BIDEN PRESS OPEC YET?

Last year, Biden joined his predecessors who at one point or another lobbied OPEC to increase production, with varying success.

The president announced several measures in an attempt to lower fuel prices in November. The White House, in collaboration with Japan, South Korea and India, announced an outflow of barrels from its strategic reserves.

Biden had also said China would be involved, but the country, the world’s largest importer of crude, said it would sell its reserves on its own schedule.

The group cut supply to a record 9.7 million barrels per day in early 2020 when the pandemic broke. It has slowly restored production, but currently OPEC + is still withholding over 3 million barrels per day of supply.

WHAT ARE THE OTHER OPTIONS OF BIDEN?

Biden could increase sales of the US Strategic Petroleum Reserve (SPR). However, this supply is limited and paltry in relation to the size of the global market.

Inventories of SPR crude fell to 593 million barrels, their lowest since November 2002.

Biden’s announcement in November called for a release of 50 million barrels of sales and loans, about half of a day’s global consumption.

The president could also consider an exemption from the federal gasoline tax; the federal gasoline excise is 18.4 cents per gallon.

In 2008, lawmakers launched the idea in response to a price spike that took gasoline to over $ 4 a gallon – but since refiners can’t quickly produce more gasoline, such a move would likely only stimulate demand, ultimately pushing prices up, economists argued.

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Reporting by Jessica Resnick-Ault; Editing by Heather Timmons, David Gaffen and Marguerita Choy

Our Standards: Thomson Reuters Trust Principles.

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