Turn on the taps — and quickly.
That’s the message the administration of United States President Joe Biden sent to the Organization of the Petroleum Exporting Countries (OPEC) and its allies on Wednesday, imploring them to do more to support the global economic recovery and ease the painfully high prices Americans have been experiencing at the petrol pump.
“President Biden has made clear that he wants Americans to have access to affordable and reliable energy, including at the pump,” US National Security Advisor Jake Sullivan said in a statement Wednesday urging OPEC and its allies led by Russia, known as OPEC+, to further unwind production cuts — and fast.
“While OPEC+ recently agreed to production increases, these increases will not fully offset previous production cuts that OPEC+ imposed during the [coronavirus] pandemic until well into 2022,” Sullivan said. “At a critical moment in the global recovery, this is simply not enough.”
Sullivan’s statement was released on the same day that US government data showed petrol prices climbed 2.4 percent in July from the previous month — the second consecutive month of price increases.
Overall, gasoline prices are up a whopping 41.8 percent from this time last year, the Consumer Price Index from the US Bureau of Labor Statistics showed, although some of that can be attributed to so-called base effects, given oil demand was gutted when the pandemic struck last year and had only just started creeping back up in the summer of 2020.
OPEC+ controls over 50 percent of the global supply of crude. That gives it tremendous sway over oil prices, which the cartel can influence by boosting or cutting production.
The US pumps out plenty of crude in its own right, some 20 percent of total world oil production, making it the largest oil producer in the world, according to the US Energy Information Administration.
But it also consumes a lot of oil — 21 percent of the world total. Moreover, its production costs are far higher than OPEC’s biggest member, Saudi Arabia.
That leaves the US walking something of a tightrope when it comes to oil prices: too high, and American consumers feel pain at the pumps; too low, and US shale oil producers cannot stay in business because their prices aren’t competitive.
“Although we are not a party to OPEC, the United States will always speak to international partners regarding issues of significance that affect our national economic and security affairs, in public and private,” Sullivan said in his statement Wednesday.
“We are engaging with relevant OPEC+ members on the importance of competitive markets in setting prices. Competitive energy markets will ensure reliable and stable energy supplies, and OPEC+ must do more to support the recovery,” he added.
It’s been a turbulent time for the oil industry. When the pandemic struck in March 2020, prices plummeted as global oil demand fell by roughly a third. A full-on crash ensued after Saudi Arabia initiated a price war with Russia after the two oil producers could not agree on a production-cut target to shore up prices.
The price war strained the 75-year-old relationship between the US and Saudi Arabia. Higher-cost US shale oil producers, many of them laden with debt, faced an existential crisis. In April of 2020, with the world awash in oil, prices of benchmark US crude turned negative as traders paid to have oil taken off of their hands rather than scramble for a place to store it.
After diplomatic finagling by then-US President Donald Trump, OPEC and its allies agreed to scale back production to 9.7 million barrels per day (bpd), a record low.
That marked a long road to recovery for oil prices, which started to climb again as economies reopened and demand revived. In February of this year, benchmark global Brent crude surpassed its pre-pandemic level.
In July, OPEC+ producers agreed to ramp up production by a cautious 400,000 bpd, but are wary about moving too quickly to unwind cuts as the Delta variant of the coronavirus surges and as China once again locks down parts of the country in an effort to curb the spread of the virus.
At the same time, the US economy is experiencing surging inflation that has spooked investors — even as Federal Reserve Chairman Jerome Powell seeks to assure them it will pass as the disruptions of the pandemic ebb.
Powell has repeatedly said that the inflation the US economy is experiencing is a temporary consequence of supply bottlenecks for raw materials and labour forming as coronavirus vaccination rates climb, pandemic restrictions are lifted, consumers unleash pent-up demand and businesses around the country gear up operations.
But high petrol prices have the potential to weigh on the US economic recovery and anger consumers, which is partly why the White House is speaking up now.
August in the US is traditionally a time when Americans hit the road for vacations ahead of the start of the school year for children. Nothing puts a damper on a road trip like high petrol prices.
The current average price for a gallon (four litres) of unleaded fuel in the US is $3.185, up from $3.144 a month ago and $2.174 a year ago, according to the American Automobile Association. That’s still well below the record price of $4.114, which the US hit in July 2008.
Climbing petrol prices also have political consequences, and calls for OPEC+ to do more are a strategic move for Biden, who has an eye towards the 2022 midterm elections in which members of his party are up for re-election in Congress.
Inflation, high petrol prices and falling purchasing power could provide a different kind of fuel for Republicans who have accused his administration of running the US economy too hot.