Biden downplays OPEC+ oil cuts, left with only 5 options to respond
5 Min Read
The Biden administration is looking for ways to face the impact that the oil cuts will leave on the US market as presidential elections loom.
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US President Joe Biden listens as he meets with Finland's President Sauli Niinisto in the Oval Office at the White House in Washington, US, March 4, 2022 (Reuters)
The re-election campaign of the US President just got more complicated after OPEC+ decided to cut oil output by 1.6 million bpd, resulting in an increase in fuel prices for American citizens.
Biden attempted to downplay the effect of the massive cut and its impact on the US energy sector and inflation levels.
“It’s not going to be as bad as you think,” he said on Monday, responding to a reporter's question.
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On the other hand, US Treasury Secretary Janet Yellen criticized the oil production cut calling it an "unconstructive act." It is "not positive" for global development, she added.
"I think it’s a regrettable action that OPEC decided to take. I’m not sure yet just what the price impact will be," Yellen told reporters Monday after an event at Yale University.
"I think we need to wait a little longer…to really assess that," she added.
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Tapping into the SPR
In the 1970s, the US established the Strategic Petroleum Reserve (SPR), which is the country's emergency oil stockpile that is released in a state of crisis. Energy Department data showed that the SPR currently holds 371 million barrels, half of its full capacity and a four-decade low.
The fall in reserves was mainly due to the historic release of 180 million barrels by Biden's administration to fight rising gas prices due to sanctions on Russia. Despite prioritizing filling back the SPR, the US administration has failed so far due to the rising price of oil and the ongoing maintenance of half the reserve sites.
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However, it seems that Biden might resort to releasing more barrels to stabilize domestic gas prices.
Energy Secretary Jennifer Granholm said a refill and a release cannot happen at the same time, indicating that replenishing the stockpile will not happen soon.
"There is nothing stopping Biden from selling more oil," said Kevin Book, head of ClearView Energy Partners. “President Biden has taken ownership of gasoline prices in ways other presidents before him have not,” said Book. “If he continues that, it creates possibility for more interventions.”
Persuade US producers
The US President criticized the American oil companies last year for making record profits while refusing to increase production to lower gas prices. Things have not changed much this year, as the energy sector is hesitant to increase drilling in fear of a cycle of a global price hike, followed by a decline.
“Since the US can’t really force the hand of the OPEC+ members, the proverbial ‘whipping person’ will be the domestic oil and gas industry,” said Timm Schneider, an expert and chief of The Schneider Capital Group LLC.
“We will continue to work with all producers and consumers to ensure energy markets support economic growth and lower prices for American consumers,” a spokesperson for the National Security Council said. “We’re focused on prices for American consumers, not barrels, and prices have come down significantly since last year.”
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Sanctions on OPEC
OPEC+ made a surprising decision last year to cut oil production by 2 million barrels a day, which impacted the US ability to refill its SPR due to global oil prices rising, and, in turn, raised pump prices.
In response to the oil group, the US suggested that it might sanction the OPEC members, pushing legislation called “No Oil Producing and Exporting Cartels Act" - “NOPEC” - only to back down on the bill later on for its impact on diplomatic relations and sales of the military-industrial complex.
Limit exports
Limiting the export of petrol products, such as gasoline and diesel, is also an option that Biden's administration considered last year to lower pump prices, but it did not go forward with it over concerns that it might backfire on some states and result in higher gas prices.
“If we go into the summer with gasoline at $4 a gallon, I would think they would also revive consideration of product export restrictions,” said Bob McNally, head of Rapidan Energy Group consultancy firm and a former White House official. “If this leads to an overtightening of the oil markets — as they say in the Navy, stand by for heavy rolls.”
But this option is still on the table now - to require oil firms to reserve fuel inside the US.
Read more: Prices surge after OPEC+ decision, finance experts comment
No actions is also action
According to David Goldwyn, former special envoy for international energy affairs under ex-US President Barack Obama and now chief of Goldwyn Global Strategies consulting firm, taking no action is also a possible option for Biden.
“This looks like a market-based cut from OPEC, which does not require an administration response,” Goldwyn said. “OPEC is anticipating slow demand growth. This year’s congressionally mandated sale has not hit the market and OPEC’s action is probably designed in part to counteract that.”
