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Outcry grows after White House looks to OPEC+ to help quell rising gasoline prices

President Joe Biden is facing increasing criticism over his response to rising gasoline prices, ironically uniting progressives and conservatives and oil companies and biofuels producers in their displeasure with the White House seeking foreign help to address a domestic supply-demand imbalance for oil and gas.

“The administration that touts a ‘Buy American’ agenda chose Russia and Saudi Arabia over vast resources in places like Alaska, Colorado and Wyoming — states that depend on a thriving energy industry to fund schools, parks and other public services,” the American Petroleum Institute’s Frank Macchiarola said in an op-ed piece Aug. 18.

“US energy workers are left in the cold as a Democratic White House and its allies plead with foreign regimes to provide energy that could be produced here in America,” Macchiarola said. “Against the backdrop of a pandemic, the White House’s outreach to OPEC+ did nothing but add insult to injury.”

The Biden administration earlier in the month urged OPEC+ producers to increase oil supply to ease crude prices and blunt the domestic pressure of high gasoline costs, a move that some called out for seemingly contradicting the push to curb US dependence on fossil fuels.

While progressives stressed the adverse climate impacts of Biden’s plea for OPEC+ to boost output, the GOP harped on the national security implications of relying on foreign energy sources.

Domestic supplies
“It is astonishing that your administration is now seeking assistance from an international oil cartel when America has sufficient domestic supply and reserves to increase output, which would reduce gasoline prices,” a group of 24 Republican senators said in a letter Aug. 16 sent to the president.

“We urge your administration to revise its regulatory agenda and legislative priorities as it relates to domestic oil and gas development,” they said in the letter, led by Senator Jim Inhofe, Republican-Oklahoma.

The senators argued that Biden’s policy agenda — which has seen the US rejoin the Paris Climate Agreement, cancel the Keystone XL pipeline, pause oil and gas drilling leases on federal lands and waters, and propose higher taxes on oil and gas developers — is behind the rise in gasoline prices and is putting US energy and national security at risk.

The Renewable Fuels Association has similarly written to the president, asserting that the administration is looking for solutions in the wrong place.

“Rather than hoping Iraq, Iran, Venezuela and other OPEC+ countries will provide the cure to escalating gas prices in the United States, we urge your administration to pursue a real and immediate solution to higher pump prices — increased production and use of low-carbon renewable fuels like ethanol,” RFA President and CEO Geoff Cooper said in the letter. “Using more domestically produced ethanol would not only result in lower fuel prices for consumers, but it would also support your goals related to clean energy, climate change and jobs.”

Cooper touted the cost savings expanded use of ethanol under the Renewable Fuel Standard has afforded to drivers, lowering gasoline prices, on average, by 22 cents/gal, and pointed to E10 fuel sales in recent weeks typically being 30-40 cents/gal less than gasoline with no ethanol.

“With the right policy and regulatory actions, renewable fuels can do even more to keep pump prices in check, reduce petroleum dependence and reduce carbon emissions,” he said.

Spare capacity
The “public request for greater OPEC+ crude supply highlights US politicians’ deep-rooted sensitivity to retail pump prices, especially during the summer peak of gasoline demand,” Paul Sheldon, chief geopolitical adviser for S&P Global Platts Analytics, said in an email Aug. 18. “But it also sheds light on an underappreciated market reality: The world’s only readily available spare capacity resides in OPEC+, despite historic growth in US crude production over the past decade.”

OPEC+ spare capacity averaged 5.4 million b/d in July, down from a 35-year high of 9 million b/d in June 2020, according to Platts Analytics. Saudi Arabia, the UAE, Russia, Kuwait and Iraq hold 92% of that capacity.

US retail gasoline prices averaged $3.14/gal in July, the highest monthly average since October 2014, according to the US Energy Information Administration. The agency attributed recent price increases to higher crude prices and rising wholesale gasoline margins, amid relatively low gasoline stocks.

US oil production remains about 1.6 million b/d below the pre-pandemic level of 12.8 million b/d set in March 2020, and EIA expects output to remain relatively flat through October.

‘Surprisingly pragmatic’
Sheldon asserted that “the Biden administration’s oil policies to date have proven surprisingly pragmatic compared with [Biden’s] campaign rhetoric during the Democratic primary, at least on issues immediately affecting supply.”

Biden “has balanced a rejection of the Keystone XL cross-border pipeline and tougher methane regulations, neither of which curtail near-term US production volumes, with implicit support for the Dakota Access Pipeline, the Alaska Willow project, and issuing drilling permits on existing federal leases,” Sheldon said.

He added that, despite US pressure, OPEC+ is unlikely to veer from its July agreement to increase crude production by 400,000 b/d per month, beginning in August, especially given recent price softness.

“Conversely, more downside price pressure or coronavirus-related demand uncertainty could cause OPEC+ to slow the pace of quota increases in the fourth quarter of 2021,” Sheldon said.
Source: Platts

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