Sign up to receive free updates on Oil news. We’ll send you a myFT Daily Digest email every morning, rounding up the latest Oil news. The recent surge in petrol prices in the US is causing concern in Washington, particularly as President Joe Biden is focusing on lower inflation and the strength of the US economy as he seeks reelection. Petrol costs have reached a nine-month high due to a 20% increase in global crude prices this summer, caused by supply cuts from Saudi Arabia and Russia. There are now predictions of oil reaching $100 a barrel this year, leading to worries about the political implications.
According to Bob McNally, head of consultancy Rapidan Energy Group and former adviser to President George W. Bush, the White House is in a state of panic. Rising pump prices have a negative impact on consumer confidence and the president’s approval rating, which is a concern for any sitting president. However, a White House official stated that petrol prices are still down over $1 since their peak last summer, and the administration is monitoring the situation closely.
Last week, Saudi Arabia announced that it would extend and potentially deepen existing oil production cuts, despite warnings from the International Energy Agency about tightening crude markets in the coming months. This decision could further strain the relationship between Saudi Arabia and the White House, as the Biden administration has repeatedly called on Riyadh to increase oil production.
The recent increase in US pump prices is not limited to petrol; diesel prices have also risen. This is concerning for the industrial and agriculture sectors, as diesel is a crucial input cost. However, there is hope that the Federal Reserve can manage the economy’s soft landing after months of interest rate hikes to combat inflation.
President Biden has been promoting his “Bidenomics” in recent weeks, highlighting a cooling of inflation and record job creation. However, Republican opponents have seized on the rising fuel prices, blaming them on Biden’s perceived “war on American energy.” This could become a key attack line for the GOP if petrol costs continue to rise.
The international crude oil benchmark, Brent, reached a four-month high of $86.65 a barrel after Ukraine’s drone strikes on military vessels at the Russian Black Sea oil port of Novorossiysk. The fear is that Ukraine’s counteroffensive could disrupt energy supply. Analysts at Goldman Sachs reported that global oil demand reached a new record high in July, driven by summer travel, economic resilience in the US and India, and strong oil demand from China. This, combined with weak supply growth, could send Brent to $100 a barrel by the end of the year, according to consultancy Enverus.
US petrol prices fell last year but have risen almost 10% in the past month to $3.83 a gallon, remaining 60% higher than when Biden took office. Politicians in Washington and Europe are preparing for the consequences of rising fuel prices. The UK government is hopeful that North Sea oil and gas deposits can increase energy security despite climate change commitments.
Market watchers are also concerned that Russia could use its oil exports as a weapon to influence the US election next year, similar to its decision to cut gas supplies to Europe in the past. Rising pump prices have the potential to influence closely contested elections. The White House may have limited options to contain further price increases after depleting emergency stockpiles last year, leaving the Strategic Petroleum Reserve at its lowest level since 1984. Analysts suggest that the US may need to seek assistance from Saudi Arabia, although Biden has had less success in influencing the country’s oil supply policy compared to Trump.
Overall, the rising petrol prices in the US have triggered alarm in Washington, posing challenges for President Biden’s reelection campaign. The potential impact on consumer confidence and approval ratings, as well as the political fallout, is a cause for concern. The Biden administration continues to monitor the situation closely but faces limited options to manage the situation effectively.
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