- The White House is beginning to panic as consumers face $4 per gallon gasoline.
- Instead of reversing policies against domestic and especially federal land and offshore oil production, Biden is negotiating with Iran and Venezuela to increase their production to add to world supplies.
- China’s economic sluggishness has weighed on prices, but it is still buying oil to store for emergencies.
- Biden’s promise to begin refilling the Strategic Petroleum Reserve that he drained remains unfulfilled, and its levels remain at their lowest level in 40 years.
- OPEC’s production cuts and refining outages have also impacted oil prices.
The Biden White House is worried about gas prices now that a number of states have prices over $4 a gallon. Because high gas prices agitate voters, the White House is in discussion with Venezuela again to get Maduro to agree to run “free elections” in return for removing oil sanctions that would put more oil on the global market, thereby reducing oil and gasoline prices. His administration is also in talks with Iran, and that country has been ramping up exports. Biden could easily get more domestic oil from Texas, Oklahoma, New Mexico, North Dakota and Alaska just by removing his anti-oil and gas policies, but that is not in the cards as he campaigned on wanting to end fossil fuels. The last time gasoline prices escalated beyond the $4 mark and into $5 territory, Biden attacked the U.S. Strategic Petroleum Reserve, selling off 260 million barrels in slightly over a year, which succeeded in bringing gasoline prices down. But, selling more oil from the Strategic Petroleum Reserve may not to be an option this time as Biden has yet to refill those barrels in the emergency reserve, citing oil prices over his preferred price of around $70 a barrel.
U.S. Gasoline and Diesel Prices
According to AAA, average gasoline prices were $3.828 a gallon on August 25. However, 10 states had gas prices that day over $4 a gallon: Alaska ($4.566), Arizona ($4.286), California ($5.261), Hawaii ($4.786), Idaho ($4.128), Illinois ($4.100), Nevada ($4.474), Oregon ($4.73), Utah ($4,215), and Washington ($5.069). The $4.00 threshold is believed to be the level where voters get agitated, although many find prices below that threshold hard to endure, especially with prices of everything else are inflated.
On Sunday August 27, regular gasoline still averaged about $3.82 nationally, about 60 cents higher than at the beginning of the 2023 year and about $1.50 higher than when President Biden took office. Diesel prices were down about 31 cents compared with early January but have gained more than 40 cents from a month ago. According to AAA, diesel prices in all but four states are over $4 a gallon.
Background
Russia’s invasion of Ukraine along with Biden’s anti-oil and gas policies resulted in oil prices reaching over $120 a barrel last year, and gasoline prices hitting the $5 mark. To lower gasoline prices, the Biden administration decided to tap the emergency petroleum reserve and continued to deplete it through the mid-term elections. This year, fears of a recession and a weak economic recovery in China from its COVID lockdowns kept oil prices stable and gasoline prices below $3.60 a gallon for much of the year, which helped to curb inflation. Falling coal and natural-gas prices also helped business and consumers by lowering electricity bills. To shore up oil prices and to increase revenues from oil exports, Saudi Arabia and Russia cut oil production this summer, raising oil prices to around $80 a barrel, which also pushed gasoline prices up.
Another factor increasing fuel prices is that U.S. refineries had to catch up on maintenance that had been postponed during the pandemic, removing about 2.2 million barrels a day of refining capacity– about one million more barrels than what would have gone offline because of maintenance during a typical year. Unplanned outages also played a role in the loss of refining capacity due mainly to the searing heat this summer. The outages raised the cost of producing summer-grade gasoline, which resulted in higher prices for consumers.
Refiners are now transitioning to winter-grade gasoline, which is cheaper to produce than summer gasoline, and should take some pressure off prices. Growing demand for diesel from the agricultural sector going into the fall should help increase stocks of that fuel.
Biden Sees Iran and Venezuela as Better Suited to Produce Oil
Instead of supporting domestic oil development, Biden is turning toward Iran and Venezuela for oil exports to keep world oil prices in check. Biden’s hope is that lifting sanctions on Venezuela will mean more oil exports of a coveted heavy blend that would increase diesel output, which is globally undersupplied. Venezuelan oil has properties akin to those from the Alberta oil sands, which would have increased had Biden not halted the Keystone XL pipeline. Sanctions have had a major impact on Venezuela’s oil sales, which is the country’s top export. The Biden administration would grant a license to lift all or some of the sanctions against Venezuela for a temporary term if its leader agrees to “free elections.”
The Biden administration has also been in secret negotiations with Iran on prisoner exchanges, the unblocking of frozen assets ($6 billion in Iranian oil revenue that is stuck in South Korea), Iran’s enrichment of uranium and oil flows. U.S. officials have gradually relaxed some enforcement of sanctions on Iranian oil sales, allowing Iran to restore production to its highest level since the ban kicked in five years ago. Iran is now shipping its highest level of oil to China in a decade and it is confident that it will produce even more oil soon. The increased supply is helping moderate oil prices, which recently eased below $85 a barrel, keeping the cost of gasoline below $4 a gallon, which is in President Biden’s best interests for his reelection campaign in 2024.
Iranian oil shipments to China–the world’s biggest oil importer–have reached 1.5 million barrels a day — by one estimate, the most in a decade. Another estimate has Iran’s oil exports exceeding 2 million barrels a day. Iran’s production increased to 3 million barrels a day in July, the highest level since 2018, according to the International Energy Agency. Iran expects to increase oil production to 3.4 million barrels a day in the coming weeks and may increase to 3.6 million barrels a day by year’s end. If the country achieves that target which is just a few hundred thousand barrels less than pre-sanctions capacity of 3.8 million barrels, there would not be much more oil to be produced even if a formal agreement with the United States is finalized.
Whether Iran can sustain, or even increase, exports will depend initially on how much more oil it can pull from storage. The country has drawn down a combined 16 million barrels held onshore and aboard tankers this month, leaving it with another 80 million barrels.
Iran’s oil supply increases undermine efforts by OPEC+ to shore up prices. Saudi Arabia, leader of the Organization of Petroleum Exporting Countries, deepened oil output cutbacks over the summer by 1 million barrels a day. Yet, Brent futures have retreated 5 percent since hitting a six-month high in early August.
China has been purchasing Iranian oil to fill its strategic reserves, encouraged by discounts Iran is offering to compete against Russian supplies. Iran’s two main grades currently trade at discounts to Brent oil of more than $10 a barrel.
Conclusion
Biden does not want to increase domestic oil and gas production and has cut federal lease sales, delayed drilling permits, added federal land to conservation efforts, and significantly raised royalty rates and other fees on oil producers to discourage U.S. production. He would rather make deals with Iran and Venezuela to allow them to sell oil aboard in hopes of keeping gas prices below the $4 mark that agitates voters. In the meantime, oil and gas prices are inching up and Americans are paying at the pump.
