Biden Not Yet Worried About Oil Prices

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Crude prices have spiked to $75 per barrel and US retail gasoline prices have risen by 30% to a $3.15 per gallon -- a seven-year high -- during the first six months under President Joe Biden. That would typically be cause for concern for a US administration, but Biden is not panicking. Although rising prices open the door to critiques of Biden's climate policies, this administration has had a unique buffer to the economic pressure of higher oil prices in recent months as stimulus programs have helped US households most sensitive to prices at the pump. “Government money has made wallets fatter, so high gasoline prices don’t feel as painful,” points out ClearView Energy's Kevin Book. Former President Donald Trump, a Republican, famously directed tweets to Opec when gasoline prices climbed towards $3/gallon (OD Sep.18'18). But White House officials today argue that recent high prices should be considered in the wider economic context. Consumers are “paying less in real terms for gas than they have on average over the last 15 years,” spokesperson Jen Psaki said in late May ahead of the peak summer driving season. Biden, a Democrat, is also contending with the fact that the US is a major oil-producing nation, as well as a consuming one, and that higher prices are supporting a domestic oil industry that looked to be on death's doorstep a year ago (PIW Nov.15'19). Following the 2008 financial crisis, the Obama administration, in which Biden served as vice president, was loath to push too hard on the oil sector, a key source of jobs at the time. But as the oil industry has become leaner over the last several years, oil and gas extraction jobs have fallen despite rising output, according to Bureau of Labor Statistics data -- even if the industry remains a big source of jobs in some communities. Republican lawmakers have repeatedly tied higher gasoline prices, as well as the gas lines induced by the May hack on the Colonial Pipeline, directly to Biden’s climate polices, even though those policies are not directly impacting current oil supplies (PIW May14'21). With the goals of a low-carbon economy in mind, the Biden administration moved early to withdraw the permit for the Keystone XL pipeline that would have carried Canadian oil sands to the US Gulf Coast for export; launched a review of oil and gas leasing on federal lands; and promised to regulate methane regulations (PIW Jan.29'21). The cost of complying with methane regulations amounts to cents on the barrel of oil, says Amy Myers Jaffe, director of the Climate Policy Lab at Tufts (PIW Feb.12'21). And with carbon intensity of oil an emerging focus for consumers, the Keystone pipeline may have taken out oil sands to a market with a dwindling appetite. “Who’s betting on Canadian oil production being higher 20 years from now than it is today?” she asks (PIW Jun.25'21). Democrats in the past have used high prices to promote policies that reduce US dependence on oil and address the threat from climate change. Today's rising prices could fit that narrative under Biden's ambitious climate goals, but the administration is not likley to publicly cheer rising prices. The US' economic pain from higher prices will become more acute as government stimulus tapers off, and the issue could become more pronounced closer to next year's midterm elections. Marginal voters tend to come from lower income quintiles who are more sensitive to gasoline prices, said Book. “Politicians who ignore those voters do so at their peril,” he adds. That does not mean the White House is likely to suddenly push policies aimed at adding more barrels to the market. Democrats in power must also maintain political support on the left, and the reality is that existing climate policies are not sufficient to meet Biden's bold targets (PIW Apr.23'21). Instead, the White House is focusing on policies aimed at easing economic pain in other ways. Recently, it rejected a proposal to increase the gasoline tax to help fund a bipartisan infrastructure bill. And there may be more tolerance for higher oil prices, even if the headlines hurt: During Obama’s tenure, officials used a rough $120-$125/bbl range as the price at which the economy would suffer real economic harm and need an intervention, Energy Intelligence understands.

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