Does Fuel Price Relief Mean More Pain for Biden?

After months of bad headlines surrounding fuel prices and inflation, the White House is trying to play up the positive: a steady decline in prices at the pump over the last several weeks.

However, those falling fuel prices could indicate that more economic headaches are in store for the Biden administration.

On Monday and Tuesday, the White House released memos pointing to the drop in gasoline prices, calling it “one of the fastest declines in over a decade.” Biden communications director Kate Bedingfield pointed out in a memo that prices at the pump have declined by an average of 52¢ over the last 35 days.

On the face of it, that’s good news for the administration, which has been grappling with rising prices for the past year. US President Joe Biden last week traveled to Riyadh to smooth over relations with Opec heavyweight Saudi Arabia. Biden has also signed off on steady releases from the US Strategic Petroleum Reserve (SPR) to the tune of 1 million barrels per day and authorized the sale of gasoline with a higher ethanol content this summer in an attempt to tamp down soaring prices.

Other policy efforts, including the administration’s pursuit of higher refining output, its push for a gas tax holiday, and congressional advocacy of a windfall profits tax, are languishing.

Damned If You Do

While Biden’s policy moves — particularly the SPR releases — have had some effect on fuel prices, the steep declines registered over the last month are primarily due to growing recessionary concerns amid ongoing high inflation, as well as wobbles in demand triggered by the high prices themselves.

Neither are positive for the White House as it enters an election season with voters focused on the economy.

“The recent rally in oil and other raw material prices has started taking its toll on economic growth," said Tamas Varga of brokerage PVM Oil. "Inflation is rising and central banks are doing everything within their power to put a break on the price rise, even if it comes at the expense of economic expansion."

Varga added that persistent flows of crude and products from Russia in spite of sanctions have also helped calm the market a bit.  

Analysts with the American Automobile Association have pegged $5 per gallon as the level at which consumer behavior would start chipping away at demand. Consumption has been unsteady since prices at the pump breached that level earlier in the summer.