WASHINGTON — As the White House publicly promotes falling gas pricesBehind the scenes, officials fear prices could rise again as they continue to look for ways to get more oil to market.
The White House used a drop in the average gas price under $4 last week to talk about President Joe Biden’s response to record oil prices and push back against Republicans who blamed him for the previous price spike.
But oil traders, industry executives and former administration officials warn that prices could easily rise again, as many of the issues that contributed to the early summer surge are still a factor, such as limited refining capacity and uncertainty surrounding Russia’s war in Ukraine. Industry experts said the White House had limited impact on the recent price drop, instead highlighting fears of a recession as the Federal Reserve raises interest rates, a slight pullback in consumption request due to past high prices and increased global production.
“The Federal Reserve is currently the biggest national player on oil prices with higher interest rate hikes. The specter of recession is definitely in the oil market,” said Daniel Yergin, vice president of S&P Global. and author of “The New Map: Energy, Climate and the Clash of Nations”.
Administration officials pointed the finger at a Treasury Department analysis showing that Biden’s decision to release 180 million barrels of oil from Strategic Petroleum Reserves contributed 13 to 31 cents to the more than $1 drop in gas prices from their June highs, with similar releases by d ‘other countries adding up to 11 cents more to the decline.
But there is no indication that Biden’s other efforts, such as publicly shaming oil and gas companies for their record profits, calling an emergency meeting with CEOs and threatening to retire unused drilling permits, had no effect on prices or production, according to industry experts. Although oil production increased, it did so at a rate similar to that expected before Russia invaded Ukraine.
“There really hasn’t been a policy that we can tell you that has helped the situation. When the leaders met with the White House over the past few months, their main message was not to make things worse,” said Geoff Moody, vice president of government relations for U.S. fuel and petrochemical manufacturers, “There were a lot of things they felt they hadn’t done that would have really exacerbated the situation. So in to the extent that they want to take credit for anything, I’d say it’s by not interfering.
Although gasoline prices have fallen since the start of the summer, they are still near pre-pandemic highs. A gallon of gas is about 75 cents more than it used to be around this time last year and more than a dollar above where it was in 2019 before the pandemic slumped demand and oil producers and refiners cut production.
While touting the recent decline, administration officials acknowledge that prices could rise again, although they expect prices to fall a bit more as demand typically drops in the fall. “It’s a global market. Anything can happen, especially when it comes to what’s happening in Russia and Ukraine,” an administration official said.
Energy Secretary Jennifer Granholm pointed to a report from the U.S. Energy Information Administration that predicted prices would fall to $3.78 per gallon in the fourth quarter, saying during a CNN interview last Sunday (August 14), “We hope that’s true, but, again, this can be affected by what is happening globally.
One of the steps the administration is looking to take to encourage oil companies to increase production is to ensure that they will be able to sell their oil to the US government at a fixed price as it begins to resupply some of the barrels that Biden sold from the Strategic Oil Reserves. In the past, the federal government paid the market price when the oil was delivered, which could be higher or lower than the price when the contract was signed. The official said offering a fixed price now could remove some of the risk for oil companies investing in new drilling operations that could take months or years to become operational.
The administration has also tried to strike a deal with other European and Asian allies to impose a price cap on Russian oil to drive down gas prices and reduce Kremlin revenue. The countries agreed price cap at the G7 meeting in June with the aim of having it in place by the end of the year. But industry analysts have warned it could backfire and drive up prices if Russia cuts production accordingly, creating an artificial shortage.
A fundamental problem is the lack of refineries to turn oil into gasoline after five shutdowns during the pandemic when gas demand plummeted. And, next year, a Lyondell refinery in Houston producing more than 200,000 barrels a day is set to close.
Another fundamental issue that remains is the tension between Biden’s climate goals centered on transitioning away from fossil fuel use and the need for oil companies to ramp up production to meet continued consumer demand.
The White House has had regular conversations with refiners to try to identify ways to help keep production online and bring closed refineries back, the administration official said. In a sign of progress, PBF Energy recently restarted production at a New Jersey refinery that would add 50,000 barrels of capacity per day, the official said.
“We are trying to address these issues as we do in other areas of our supply chain, whether it’s ports or infant formula,” the official said. “Even though these are private transactions, the government can play a role in trying to remove all roadblocks if it is in the public interest.”