Biden’s ‘ownership’ of pump prices spells trouble
Petrol prices are back in the headlines.
Official government stats released yesterday showed that a jump in what Americans are shelling out at the pump had pushed US inflation to 3.7 per cent per cent in August, up from 3.2 per cent in July.
The data will have caused blood pressure to rise in the White House, where Joe Biden’s team, staring down the barrel of an election year, is frantically trying to convince Americans that the president’s sweeping “Bidenomics” programme is making life better for everyday people.
The forecourt squeeze is not helping that message. Motorists are now paying an average of $3.85 a gallon for petrol (gasoline on this side of the pond). That figure seems to be edging up daily, according to the AAA: in the last week alone prices are up 5 cents.
And with crude extending its shift northwards in recent days, in the wake of Saudi Arabia and Russia’s decision to extend production and export cuts to the end of the year, the pinch at the pump is unlikely to let up any time soon.
Brent settled yesterday at $91.88 a barrel and analysts now reckon $100 oil is not far off.
As David and I wrote last week, fuel price inflation — visible as it is in shining lights along highways across the country — tends to play an outsized role in voter perceptions of the economy.
Despite having fallen from record levels over $5 a gallon last summer prices are now up by a quarter since the beginning of the year – and more than 60 per cent since Biden took office.
Already Republican politicians are trying to pin the blame on the current administration. Chris Christie, the former New Jersey governor and Republican presidential contender, slammed the president for souring relations with the Saudi crown prince. Donald Trump, the front runner for his party’s nomination, lashed out at Biden’s climate policies.
“Voter perceptions tend to be sticky,” said Kevin Book, managing partner at ClearView Energy in Washington. “That means that a high price today could be a problem next year, even if the price relents.”
In fact, Biden has tied his fate to petrol prices more tightly than any of his predecessors, Book noted: by opting to deploy oil from the country’s strategic petroleum reserve on an unprecedented scale, he “took ownership of the gas price”.
As Jake Sullivan, the president’s national security adviser, said last week:
“It’s really the price of a gallon of gas for the American consumer . . . that is going to be his ultimate metric for whether we’re succeeding or not.”
The move by Riyadh and Moscow to prop up prices has been surprisingly effective, removing 1.3mn b/d from the market, most likely until the end of the year. As the International Energy Agency put it yesterday: “The Saudi-Russian alliance is proving a formidable challenge for oil markets.”
And while the unleashing of SPR barrels on to the market last year coupled with a resiliency of growth in the shale patch ultimately helped to tamp down the surge, this time around options are more limited.
Benjamin Hoff, global head of commodity strategy at Société Générale, noted that on top of the shale patch’s insistence on capital discipline, the recent uptick in M&A was removing barrels from production, further decelerating domestic output growth.
Meanwhile, Biden’s capacity to again tap the SPR — now at its lowest level since the early 1980s — has become much more complicated.
“The ability of the US to be the blunting force to Opec+ and Saudi Arabia, that it has been historically, has been massively reduced,” Hoff told ES.
“We’re in a situation where there’s actually not a huge amount the US can do.”
A laxer approach by Washington on sanctions is one option that is likely to come to the fore. A return to browbeating domestic producers is another.
Whatever the approach, what happens with oil prices over the coming months will play a big role in determining whether the current resident of 1600 Pennsylvania Avenue will find himself house hunting this time next year.