According to AAA, the national average gasoline price increased seven-tenths of one cent to $3.681 a gallon on September 21—higher than the $3.192 gasoline price at the same time last year and about $1.30 more than when President Biden took office. The increase ended 99 days of slow declines from its high in June of $5 a gallon. Two days prior to this increase, the Biden administration announced that it was auctioning 10 million barrels of oil from the Strategic Petroleum Reserve (SPR) to be delivered throughout November. The Department of Energy (DOE) is extending the period in which it is selling 180 million barrels of oil by auctioning 10 million barrels from September 19 to September 27 and delivering the oil from November 1 to November 30, according to a DOE notice. The deliveries of the oil from the emergency fund will take place during the same month as the midterm elections on November 8, and the Biden Administration hoping to control gasoline prices beyond Election Day. The White House wants to continue lowering gasoline prices ahead of the midterm elections as it has learned gas prices directly affect voters’ everyday lives and their perception of the economy.
The retail price of gasoline is primarily determined by global oil prices. West Texas Intermediate crude oil, the U.S. benchmark, rose above $120 per barrel in mid-June and has since dropped to about $86 per barrel on slower demand growth due to high gas and diesel prices lowering U.S. consumption, lower demand from China due to COVID lockdowns, and worries about a recession lowering demand even further. Motorists in the United States drove less in July than during the previous month–a second straight monthly decline due to high gas and diesel prices. Ethanol demand (which is mixed with gasoline) has accordingly dropped, as well. Demand for gasoline was 6.5 percent less than a year ago and 8.1 percent below the five-year average. With lower demand driven by consumers pressed by the highest inflation rate in 40 years, retail gasoline prices have dropped from their peak of $5 a gallon.
SPR Releases and Global Oil Supply
Biden released 155 million barrels of oil to date, and the November sale will bring the total to 165 million barrels out of the 180 million barrels that he announced he would sell from March to October to increase the global supply of oil, thereby bringing down gas prices. On September 6, the emergency reserve fell to its lowest level since November 1984 due to Biden’s monthly SPR releases. SPR oil is sold to the highest bidder, including foreign companies, and as such China has bought almost 6 million barrels.
The Biden administration is considering replenishing the Strategic Petroleum Reserve when and if oil drops below $80 a barrel. In March of 2020, President Trump wanted to stabilize the domestic oil industry after Covid-19 hit in 2020 and global petroleum demand tanked, by spending $3 billion to fill the reserve when oil sold at about $24 a barrel. Because the Democrats in Congress voted against it, billions in potential profits were lost and tens of millions of fewer barrels are at Biden’s disposal to counter price surges. It will now take more oil to fill the reserve than two years ago. In March 2020, the reserve had 634 million barrels stored out of a capacity of 727 million barrels. After Biden’s record drawdown, the reserve is down to 427 million barrels–its lowest level since 1984, which is a problem since U.S. consumption is also much higher today than it was in 1984.
When the SPR releases end, U.S. refiners are expected to obtain oil from Canada or via seaborne imports. Some refiners are worried that limited pipeline capacity from Canada to the United States could cause bottlenecks. Canada produced a record 5.5 million barrels a day of oil in 2021, and is expected to reach 5.7 million barrels per day this year. Enbridge—the system that ships the bulk of Canadian oil exports to the United States—has had to ration pipeline capacity, in a practice known as apportionment, on its Mainline system as Canadian output has grown. Apportionment fell last year when the Line 3 pipeline expansion opened and stopped entirely from March until July, but Enbridge has once again started rationing capacity on its Mainline. Oil deliveries into the Kerrobert, Saskatchewan hub were apportioned by 2 percent in August and 6 percent in September. The Keystone XL pipeline was designed to add capacity for Canadian as well as Bakken oil from North Dakota but Biden revoked its national interest permit in one of his first actions as president.
Add to that, the fact that OPEC+ is not meeting its production targets despite President Biden’s pleas for more oil. OPEC+—the Organization of the Petroleum Exporting Countries and associates including Russia—is now a record 3.58 million barrels per day short of its production targets, or about 3.5 percent of global demand. The shortfall highlights the underlying tightness of supply in the market.
As a result, forecasters are estimating a recovery in gasoline prices. An equities analyst at Morningstar expects gas prices to “remain relatively high,” between $3.50 and $4 a gallon in the coming months. Goldman Sachs had forecast that gas prices would be back to $5 a gallon by the end of the year.
Biden’s Latest Move against U.S. Oil Production
Despite Biden saying he is doing all he can to increase domestic oil production, his numerous actions beginning on his first day in office show the opposite. Clearly, his climate/tax bill (the so-called Inflation Reduction Act) hits the domestic oil industry in the back with massive fee and royalty increases. Even production on non-federal lands gets hit with a methane tax of up to $1500 per ton.
His latest move is to finalize a rule banning oil and gas leasing near a Native American historical site despite heavy opposition from local Indigenous leaders, who indicate that the administration’s rule would prevent them from collecting royalties on their own land. The rule, which the Department of Interior announced in November 2021, would implement a 20-year moratorium on federal oil and gas leasing within a 10-mile radius of the Chaco Culture National Historical Park located in northwest New Mexico. The rule withdraws 336,000 acres of public lands from mineral leasing.
While the administration stated the rule would not impact Indian-owned allotments, blocking federal land leasing would ultimately block development on non-federal land. The rule would have a devastating impact because the indirect effects would make the allottees’ land worthless from the standpoint of energy extraction and the jobs and economic development it might produce. Due to the cross-jurisdictional land status in Navajo Eastern Agency, a proposed horizontal lateral may need to cross federal land. The Navajo Nation Council condemned the proposal, indicating it would instead support a five-mile radius, a compromise backed by industry, but ignored by the Biden Administration.
Conclusion
Gasoline prices are inching up as the Biden administration continues its attempts to bail its political prospects out by selling oil from the Strategic Petroleum Reserve, an emergency reserve that has been depleted to 1984 levels. The sales will now continue to be delivered through November, attempting to keep gas prices down through Election Day on November 8. While Biden adds to the global oil supply with the SPR sale, OPEC+ oil output is falling from its production target by a record amount and Biden continues to remove federal land from oil and gas production, even lands owned by Native Americans who are not in agreement with his policy. The end result will eventually be higher gasoline and diesel prices as some forecasters are predicting. And with the Strategic Petroleum Reserve depleted to meet Biden’s election goals, the United States is much less energy secure in an increasingly unstable world. The American public should not be fooled.
