The late-summer surge in gasoline prices is heightening the risks that inflation poses for President Joe Biden, and offering Republicans a new chance to pin the blame on his green agenda.
The GOP narrative has a major hole: U.S. oil production — already the highest in the world — is on track to set a new record this year, and will probably rise even more in 2024. But the ever-increasing flow of U.S. crude has failed to keep a lid on gasoline prices, showing once again that a global market drives the fuel prices that shape presidents’ political futures.
And that means events far beyond the nation’s borders will play a sizable role in voters’ verdict on “Bidenomics” — as global oil prices rise and fall in response to banking conditions in Europe, China’s slumping real estate market, Vladimir Putin’s war in Ukraine and the latest maneuvers by Saudi Arabia.
“The U.S. consumer blames whoever is in the White House” for high gasoline prices, Quincy Krosby, chief global strategist for financial advisory firm LPL Financial said in an interview. “Biden’s people have to be watching this despite a stronger economy, which is an irony.”
It’s not the outcome that some experts had hoped for from the United States’ rise to energy superpower. Wall Street Journal opinion columnist Walter Russell Mead predicted in 2018 that abundant U.S. energy supplies would enable energy markets to “shrug off geopolitical shocks,” while Ed Morse, a long-time oil market analyst, foresaw in 2015 U.S. oil production would drive prices down sharply and herald “the end of OPEC.”
Instead, while the United States’ reliance on OPEC for oil imports has diminished, the country’s fuel market is still dependent on decisions made at the oil cartel’s meetings in Vienna — no matter how much oil comes out of U.S. shale fields.
U.S. oil production is forecast to average an all-time high of 12.8 million barrels a day this year and keep growing to 13.1 million in 2024, the federal Energy Information Administration said in its latest forecast. That’s up from the most recent trough of 5 million barrels a day in 2008, and probably enough to help the U.S. to keep its title as the No. 1 global crude oil producer.
Global forces, meanwhile, could cause pump prices to ease next year, with the Paris-based International Energy Agency forecasting that oil supply next year will outstrip demand.
That hasn’t stopped GOP White House hopefuls from lambasting Biden and his energy policies, including the green incentives included in the climate law he signed a year ago.
In one campaign ad, former Vice President Mike Pence pretends to fill his pickup truck and blames Biden’s energy policy for “causing real hardship” for Americans, while ex-South Carolina Gov. Nikki Haley has vowed to bring oil production back to the United States.
And Sen. Tim Scott (R.-S.C.) railed last month on the Biden administration, which he asserted “has shut down energy production in America.”
“Why won’t this President tap into our abundant energy resources here at home and bring down prices at the pump?” he asked.
In fact, though, oil production from federal lands and waters has risen on Biden’s watch, reaching past 3 million barrels per day last year. The high mark during President Donald Trump’s term was 2.75 million barrels a day.
That’s data the White House rarely trumpets since it contradicts Biden’s 2020 campaign pledge to end new drilling on federal land, something his administration has not done.
“We remain focused on prices for American consumers, and prices have come down significantly since last year,” a spokesperson for the White House National Security Council said in an email. “We will continue to work with producers and consumers to ensure energy markets support economic growth and to lower prices for American consumers.”
Behind this rhetoric is the jump in the national average price for regular gasoline to $3.87 a gallon last week, up more than 30 cents in a month, according to the American Automobile Association. Prices had held near $3.50 for most of the year, but it may be a while before drivers see that level again, especially after an explosion forced the shutdown of the nation’s third largest refinery on Friday.
The price has caught the attention of drivers and political commentators, even if it’s far less dramatic than the surge to the all-time high of $5.02 per gallon in June 2022. The Biden administration responded at the time by releasing some 200 million barrels of crude oil from the Strategic Petroleum Reserve, draining nearly half of the federal government’s stockpile, a move that the Treasury Department has credited with helping shave 40 cents a gallon off gasoline prices.
The U.S. wasn’t supposed to be this exposed to the global market’s whims.
The advent of fracking that kicked off the U.S. oil boom in the late 2000s raised hopes of a new era of so-called energy independence. In this scenario, the newly oil-rich United States could pull back from the Middle East, insulate itself from volatile market shifts and retreat into a comfortable shell of energy self-sufficiency.
The reality has been far different, said Ben Cahill, a senior fellow at the Center for Strategic and International Studies.
“People assumed [the shale boom] would bring a massive change in geopolitics and that this would fundamentally change the U.S. relationship with OPEC and we’d chart this path towards energy independence that would really upend energy geopolitics,” Cahill said in an interview. “That just hasn’t happened.
“We’re the largest oil producer in the world,” he said. “We’re the largest natural gas producer in the world. But the reality is that energy prices in the U.S. are still dependent on global markets.”
That’s because even as oil fields in states like Texas, New Mexico and North Dakota have propelled the United States to the top of the oil producer charts, regional markets still find it easier to import certain grades of crude oil from Canada, Mexico, Saudi Arabia and elsewhere. The U.S. still imports about 40 percent of the oil it consumes, even though exports of crude and petroleum products continue to outstrip those shipments.
No matter how much oil the United States produces, it’s still a familiar story, said Amy Jaffe, a global affairs professor at New York University: Gasoline prices rise when the world’s major economies run hot, and fall when they’re not.
“We believed because the U.S. could drill and be successful that we were in this permanent age of abundance,” Jaffe said in an interview. ”But we’re still facing this fundamental question of how cyclical will this industry continues to be.”
The 2022 run-up in fuel prices occurred after a rare one-two punch when U.S. fuel demand rebounded after a pandemic-driven market crash, and after the invasion of Ukraine led European nations to cut imports from Russia, scrambling trade flows.
This summer’s rally, however, has largely been driven by the decision by OPEC and Russia to withhold supplies to ensure prices don’t weaken. And the cuts by Saudi Arabia in particular of 1 million barrels per day on top of the OPEC+ agreement have put a spotlight on Washington’s fraught relationship with the kingdom.
The United States’ growth transformation into a production heavyweight may lead some politicians to believe they could be more aggressive with Saudi Arabia when it came to human rights — Biden had promised in 2020 to make Crown Prince Mohammed bin Salman a “pariah” over the regime’s murder of a dissident journalist. But that attitude only goes so far once prices at the pump tick up, analysts said.
“The U.S./Saudi relationship has deteriorated since the U.S. has become less energy dependent on the Middle East, but they are still viewed as strategic partners,” Tamas Varga, market analyst at PVM Oil Associates, said via email. “Saudi Arabia plays an important role to represent U.S. interests in the region and the U.S. is a significant supplier of weapons to the Kingdom. Saudi Arabia, however, has its own agenda in the oil market which is contradictory to U.S. interest.”