The White House once again faces few options to respond to high oil prices as they race toward $90/b just two months after the Biden administration tapped emergency crude stocks.
Analysts expect the administration to consider the usual grab bag of policies and rhetoric that get brought out when domestic fuel prices rise.
These include urging US and OPEC drillers to pump more, tapping the Strategic Petroleum Reserve again, promoting anti-OPEC legislation in Congress, pushing the Federal Trade Commission to keep probing price gouging, and potentially bringing back talk of US crude export restrictions.
Energy prices are the largest driver of inflation, which is testing President Joe Biden ahead of the tightly contested November mid-term elections that will determine control of Congress.
Crude prices have surged in recent weeks for a number of reasons related to geopolitical tensions, robust demand despite omicron outbreaks, uncertainty over OPEC spare capacity, and an apparent lack of progress on restarting the Iran nuclear deal.
“The resulting pass-through to fuel prices doesn’t merely risk economic slowdown and voter frustration,” said Kevin Book, managing director of ClearView Energy Partners, in a Jan. 19 note. “It also can create headwinds to the White House green agenda: a President who campaigned on ending federal oil and gas leasing has continued to tread relatively lightly.”
SPR savings erased
Biden took historic action on Nov. 23 in ordering an SPR drawdown of 50 million barrels to bring down prices, something that had previously been reserved for physical supply disruptions. The Department of Energy has takers for a little over half of the barrels so far.
WTI crude futures dropped about $12/b in the week after the SPR announcement, but analysts saw omicron's fears as the bigger driver in that price decline. WTI surpassed late November levels on Jan. 6, climbing nearly $7/b higher than when DOE announced the drawdown.
ClearView’s Book predicts Biden will at least hint at the threat of antitrust legislation to pressure OPEC into releasing more supply to ease prices. Versions of the No Oil Producing and Exporting Cartels, or NOPEC, bill have been introduced in every Congress for the past two decades without it ever passing.
The bill would make it illegal under the Sherman Antitrust Act “for foreign oil, gas and petroleum producers to limit output, set prices or restrain trade,” and would give the US attorney general the option to sue foreign producers in US courts, Book said.
“Even if the Attorney General never brought suit, we reiterate that OPEC+ members might still conservatively opt to end their market-balancing activities anyway,” Book added. “This could quickly bring all of the 1.78 million b/d surpluses in the [International Energy Agency’s] projection back to the market, along with available spare capacity, significantly pressuring crude prices to the downside.”
Crude exports at risk?
Bob McNally, president of Rapidan Energy Group, thinks the administration will consider another SPR drawdown and might bring crude export restrictions back on the table, even though Energy Secretary Jennifer Granholm said she had heard US producers “loud and clear” that such a move would be too disruptive.
The 2015 lifting of crude export restrictions transformed the US upstream sector and reshaped global markets. Likewise, surging US LNG exports are playing a significant role in the global supply crunch and geopolitics.
Sarah Emerson, managing principal of Energy Security Analysis Inc., called the crude export ban a “nonstarter without a recognizable disruption or emergency.”
She wondered if DOE might offer to sell the remaining 24 million SPR barrels that were offered as an exchange but not taken.