President Joe Biden is trying to do something for the sky-high gasoline prices Americans face. But it is too late to reduce the cost of travel during Thanksgiving.
All eyes of the oil market are on Biden to see whether his government will announce the release of the national strategic oil reserve to control energy costs. Patrick DeHaan, GasBuddy’s head of petroleum analysis, said that even if these additional crude oil barrels enter the market today and cause futures to fall, it may still take 7 to 10 days to be fully displayed to consumers.
This means that travelers will be trapped by high prices, just as holiday driving is expected to approach pre-pandemic levels.
According to data from the American Automobile Association (AAA), the national retail gasoline price averages $3.41 per gallon, the highest level in seven years. More than 53 million Americans will travel during the Thanksgiving holiday, and 90% of them choose to travel by car.
AAA spokesperson Devin Gladden said on the phone: “Drivers should expect gasoline prices to rise when they are on the road during the holidays.” Influence.”
The final SPR release will most strongly affect crude oil prices, namely unrefined oil. How much impact this will have on the price of the pump remains to be seen.
“Oil has a big impact on the spot price of gasoline, but it is not always 100% related,” GasBuddy’s DeHaan said.
Still somewhat successful
But Biden’s approach worked to a certain extent, despite his inaction.
Biden is fighting the political consequences of the strongest inflation spike in decades, and he spent a month trying to keep oil prices down. Now it is working.
Since late October-when the price of crude oil exceeded US$85 per barrel, OPEC + rejected his call to speed up production-Biden has been threatening to release oil from the U.S. emergency reserves, demanding bureaucrats to investigate price fraud in the U.S. oil industry and stimulate the world Action by other oil-consuming countries. The government even explored options for export control.
Rising gasoline prices pose a political risk to any US president, but Biden has more reasons to worry: high energy costs, coupled with rising prices of everything from meat and clothing to factory materials and cars, threaten the economic growth. Popularity and his ability to rebound in enacting major social expenditure legislation.
The extraordinary thing about the president’s fight against high oil prices is that his government has not taken any real action so far. However, speculation about what it might do is enough to stop the rebound.
US crude oil futures have fallen by about 7% since October 26, trading below $80 a barrel on Thursday. Gasoline prices at gas stations are still close to their highest level in seven years, but they have stabilized. After he held a virtual summit with Xi Jinping, the world’s largest oil importer, the president achieved his biggest victory so far overnight. China announced its plan to open its strategic oil reserves for the second time this year.
His efforts may help prices fall in the short term. But the greater significance lies in whether the two major countries in the world will jointly influence the oil market for the first time, and whether OPEC sees this joint action as a harbinger of closer cooperation between the world’s two largest oil consumers.
Robert Johnston, a senior research scholar at the Columbia Center for Global Energy Policy, said: “If China and the United States coordinate the release of SPR crude oil, this will be a new reality for OPEC.” “Will they change their strategy of managing global market supply? Suppose this It is not a one-off. The beginning of cooperation between the United States and China will be an eye-opener.”
However, at some point, the talk may not be enough, even if Covid returns this winter and the dollar’s strength has eased inflation in the short term. Biden will need to follow up on the release of US inventories, otherwise risk traders will call him a bluff.
He can’t keep the faucet open, otherwise the strategic reserve will be emptied soon. Moreover, the release of coordinated strategic reserves may prompt OPEC and its partners to scale back plans to gradually increase production.
“If China and the United States issue coordinated SPRs, this may prompt OPEC+ to slow down its expected and ongoing production growth of 400,000 barrels per day per month,” Johnston said. He said that OPEC+ will closely assess whether these releases pose a risk of global imbalances, especially if OPEC+ sees a recovery in US shale oil growth and weak demand due to high prices.
The overall dynamics of the oil market remain strong. As the industrial economy booms and travelers take off again, demand is recovering. OPEC finds it difficult to achieve its existing monthly moderate production increase plan, and the US shale oil industry continues to put profits before production.
But it is hard to ignore the President of the United States.
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 the possible SPR issued by the Biden administration. John Kilduff, the founding partner of Again Capital LLC, has a similar view.
“I would say that half to 3/4 of the SPR version is shocking,” Kilduff said.
The recent recovery of US crude oil inventories and the increase in new coronary pneumonia cases have also helped to cool the rally.
According to data from Auto Club AAA, as for gasoline, Americans pay an average of about $3.40 per gallon, the highest level since 2014.
White House Chief of Staff Ronald Klein blamed the oil industry.
“Oil prices are falling,” Klein said in a tweet on Thursday. “Now, when will this industry reduce gasoline prices???”
While waiting for Biden to take concrete actions, oil traders and investors who largely believe that the market is under-supplied are struggling to cope with the drastic price fluctuations caused by the government’s comments in the past month and a half. Some people say that Biden may be just buying time and hope that as trading activities decrease during the holiday period, prices will fall on their own.
Michael Tran, managing director of global energy strategy at Royal Bank of Canada Capital Markets, said: “Barking may be worse than biting.” “A strategy to depress the market may ultimately have a greater impact than unexpected factors.”