Rising energy prices create dilemma for Biden administration

A sharp rise in the US cost of fuel is putting pressure on Joe Biden to respond, with domestic critics seizing on an issue with a global set of causes over which he has limited control.

The US president plans to discuss energy prices when he travels to the G20 summit in Italy this weekend, Jake Sullivan, the White House national security adviser, told reporters on Tuesday. He intends to address “the short-term imbalance in supply and demand in the global energy picture”, Sullivan said, “so that the economic recovery here in the United States and elsewhere around the world is reinforced rather than undermined”.

US energy prices are not at record highs, but they have climbed steeply since the pandemic lockdowns of last year. US crude oil prices this week crested over $85 a barrel, a seven-year high. Petrol prices now average $3.39 a gallon ($0.90 a litre), almost 60 per cent more than a year ago, according to AAA, a motoring group.

The adverse economic effect on consumers is compounded by supply-chain bottlenecks and robust inflation across the US economy, as well as the arrival of colder weather conditions in northern states where households are now bracing for higher heating costs.

In a country that has among the highest energy consumption per person in the world, the price increases are politically treacherous.

“Joe Biden has been in Washington for a very long time,” said Daniel Yergin, vice-chair of consultancy IHS Markit and author of The New Map, a recent book on global energy. “And one basic rule of American politics is that high oil and gas prices are bad for incumbents. But they don’t have a lot of levers to pull.”

The White House has tried to put pressure on the Opec oil cartel and allied exporters to increase supply in a bid to halt the rally in crude. The West Texas Intermediate oil benchmark has more than doubled since Biden’s election in November last year.

But those efforts, including direct requests to the Opec linchpin Saudi Arabia, have been rebuffed. When asked whether Biden would meet Saudi Crown Prince Mohammed bin Salman at the G20, Sullivan said the US did not yet know who would be representing Saudi Arabia at the summit.

US energy secretary Jennifer Granholm told the Financial Times earlier this month that a release from the country’s stockpile of strategic oil reserves was “a tool under consideration” as the administration tried to soften prices. But that option has now been priced into the market, analysts said, and would have little long-term impact anyway.

American oil lobbyists and executives describe as an irony the administration’s calls for cheaper crude and petrol prices, while it also scrapped new proposed supply infrastructure — such as the Keystone XL pipeline from Canada — and has sought to limit drilling on federally controlled land.

The administration is also expected imminently to introduce new rules cracking down on emissions of methane, a potent greenhouse gas, by US oil and gas producers.

Republicans on Capitol Hill have increasingly been attacking the Biden administration on energy costs, sensing that they can further dent the president’s approval ratings and boost their own candidates against Democrats in the 2022 midterm elections.

On Thursday the chief executives of large oil companies including ExxonMobil and Chevron are scheduled to testify before Congress in a hearing at which Democratic lawmakers will grill them about climate change. Republican lawmakers will use the virtual hearing as an opportunity to criticise what they contend is the Biden administration’s hostility to the domestic oil and gas industry — and responsibility for rising prices.

“The only thing the American people are worried about is not what’s happening in Glasgow [the COP 26 climate conference next week] but what’s happening to gas prices. If you look at heating fuel, if you look at just filling up your vehicle at the pump, cooking, anything like that, energy prices are starting to go through the roof,” John Thune, the Republican senator from South Dakota, told reporters on Tuesday.

While the US has largely avoided the crippling energy price surges seen in recent months in Europe and Asia, the federal Energy Information Administration warned earlier this month that global shortages of natural gas were beginning to affect American markets.

For US homes that heat with natural gas — almost half of them — the bill could rise by 30 per cent, the EIA said. Households relying on propane and heating oil for heat could pay 54 per cent and 43 per cent more, respectively.

Propane and heating oil heat a small minority of homes in the US — but many are in electoral swing states such as New Hampshire, Wisconsin and Michigan, according to analysts at ClearView Energy Partners, a Washington research group.

Line chart of Regular gasoline ($ a gallon) showing US petrol prices are below previous highs

Analysts said rising prices threatened damage to a presidency that was otherwise trying to focus on pledges to fight climate change. Kevin Book, ClearView’s managing director, said that the shale oil and gas production that took off under the Obama administration, when Biden was US vice-president, ended an era of energy scarcity and encouraged discussions about climate policy without causing a political panic.

“There’s innate symbiosis between the prolific production and green ambition. But now oil prices are putting Biden’s climate agenda at risk,” Book said.

For all the anxiety in Washington, US energy prices have hardly reached the heights seen in previous spikes, especially when adjusted for inflation. Some analysts also expect global oil markets to loosen early next year, while US domestic production is forecast to tick higher.

“Come next spring, we’ll know whether this is a short-term response to an acute situation or longer term,” Yergin said.

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