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Pain at the pump and worries over inflation appeared to prompt a two-pronged effort by the Biden administration on Wednesday to join in the long-running White House tradition of attempting to talk down oil and gasoline prices.
Crude futures dropped by more than 1% in early action after U.S. National Security Adviser Jake Sullivan, in a statement, said the administration was “engaging with relevant OPEC+ members on the importance of competitive markets in setting prices.”
Sullivan said the Organization of the Petroleum Exporting Countries and its allies should do more to support the global economic recovery and dismissed an agreement last month to begin boosting output each month in increments of 400,000 barrels a day beginning in August as inadequate.
And that wasn’t all. The White House sent a letter from Brian Deese, director of the National Economic Council, to Federal Trade Commission Chairwoman Lina Khan urging a probe into gasoline prices. Specifically, Deese noted “divergences between oil prices and the cost of gasoline at the pump.”
Later, Biden, in a speech, underlined that theme, saying that gasoline prices have remained high as oil prices fell. “I want to make sure that nothing stands in the way of oil-price declines leading to lower prices for consumers,” he said.
High oil prices, particularly when translated into rising gasoline prices, are always a politically sensitive issue. Biden is hardly the first president to take aim at OPEC, or to urge regulators to take a close look at gasoline prices.
Retail gasoline prices averaged $3.14 a gallon in July, the highest since October 2014, the Energy Department’s Energy Information Administration said in a monthly report Tuesday, reflecting “rising crude oil prices and rising wholesale gasoline margins, amid relatively low gasoline inventories.”
But analysts questioned how effectiveBiden’s efforts would prove. By the end of Wednesday’s trading session, oil had rebounded, while gasoline futures posted their highest finish since July 30.
West Texas Intermediate crude for September delivery
CL.1,
CLU21,
ended the day up 96 cents, or 1.4%, at $69.25 a barrel on the New York Mercantile Exchange. October Brent crude
BRN00,
BRNV21,
the global benchmark, rose 81 cents, or 1.2%, to close at $71.44 a barrel on ICE Futures Europe. September gasoline
RBU21,
jumped 1.5% to close at $2.3022 a gallon.
Moreover, Biden’s own target of net-zero emissions by 2050 means that encouraging increased U.S. oil output “appears to be an absolute nonstarter,” said Helima Croft, head of global commodity strategy at RBC Capital Markets, in a note.
As a result, “calling on OPEC may be one of the only levers they can pull to try to keep U.S. gasoline prices in check while at the same time preserving their climate credentials,” she said, especially in a week when the United Nations issued stark warnings about the limited window to mitigate the worst effects of global warming.
Yet, the call for greater global oil output still opened the White House up to accusations of inconsistency, she noted.
And when it comes to gasoline prices, market fundamentals appear to tell the story, said Robert Yawger, executive director of energy futures at Mizuho Securities, in a note.
Finished motor gasoline supplied, the Energy Information Administration’s favorite indicator of demand, hit a record 10.043 million barrels in July, he noted, and was near that level in last week’s report.
“The largest demand number ever is bound to raise prices,” which remain well off the all-time record from July 2008, he said. Also, U.S. producers produced 11.3 million barrels a day of crude last week, according to EIA, down from 11.4 million barrels a day three weeks ago and a record 13.1 million barrels a day in March 2020.
U.S. shale producers haven’t rushed back production as oil prices rose. Following the pandemic-induced collapse in oil prices in 2020, shale producers locked in 2021 prices near $50 a barrel, leaving them to miss out as oil topped $70 a barrel, The Wall Street Journal pointed out.
Lenders and investors have also restrained output, according to analysts.
Meanwhile, a “hellacious” summer driving season hasn’t been met with an equal response by U.S. refiners, due partly to “less-than-robust economics” as well as the structural issue of refinery closures, Croft said.
Aggregate U.S. refinery runs remain at a 1.2 million barrel a day deficit to 2019 levels over the same period, with refinery output still below the five-year average, she said. In turn, gasoline inventories hit a five-year seasonal low with a deficit of 8.6 million barrels, while U.S. crude output remains 1.8 million barrels below pre-pandemic levels — as a result crude inventories have been deeply in deficit since the start of May.
