On Gasoline Prices, Biden Is More Therapist Than Doctor

(Bloomberg Opinion) -- When it comes to gasoline prices, U.S. presidents are more therapists than doctors. They can lend a sympathetic ear and hope for better times. But immediate relief or a cure? Not so much.

President Joe Biden is facing an energy-themed winter of discontent. The Energy Information Administration expects the highest average gasoline prices for December since 2013. Natural gas prices, while no longer above $6 per million BTU, remain high relative to recent years, and it’s only November. Propane is at its highest level in more than seven years.

Energy played an outsize role in Wednesday’s unnerving inflation numbers, and Biden was quick to note that his economic advisers are on it and to promise a crackdown on any price gouging. There is also talk — some of it from the White House, some from Capitol Hill — of releasing barrels from the Strategic Petroleum Reserve or even banning exports of oil or natural gas.

The president has the power to do those things. But the president can also, say, end civilization by launching nuclear weapons — an option, yes, but not necessarily a winning platform for the midterms.

Banning oil exports would be a serious misstep. For one thing, the U.S. imports a lot of gasoline, particularly to the East Coast, home to more than a third of national demand. These barrels are priced off the international Brent benchmark. There’s a decent chance that banning exports of U.S. barrels, while crashing the price of West Texas Intermediate, would strengthen Brent, working against relief at the pump.

Meanwhile, Biden would damage an already weakened oil and gas sector. Although that might please some, there’s no escaping the fact that, right now, that industry supplies a huge share of U.S. energy consumption. It would also hand Republicans a whole new chapter for their narrative of Democratic overreach — and maybe an excuse for Senator Joe Manchin to either kill the Build Back Better Act outright or extend his equivocation to Hamlet-like lengths. Members of Congress calling for export bans should bear in mind that latter point, especially. As for why a natural gas export ban would also be a bad idea, see this.

A release of strategic barrels would be less disruptive. While that makes it more likely than a ban, it also hints at its limited utility. Remember that even when barrels are made available, refiners have to buy them. Oil inventories around the Gulf Coast, where U.S. strategic stocks and refining capacity are concentrated, aren’t particularly low.

While White House edicts can happen in a blink, physical barrels move much more slowly and maybe not at all.

That said, the EIA’s own analysis anticipates a looser oil market developing in early 2022. On that basis, an SPR release cannot be ruled out; Biden may calculate it could get the ball rolling early by at least cooling speculative spirits. A release of 30 million barrels would, looked at over a 60-day period, equate to a potential half-million-barrel-a-day increase — more than the extra barrels that Biden, among others, called in vain for OPEC+ to deliver. A release coordinated with other oil-consuming countries would add to the shock and awe.

Would it solve the underlying problem? Of course not; emergency stockpile releases are Band-Aids, not cures. But there’s a certain absurdity to this whole conversation. Presidents cannot fix energy supply and demand on a dime, and it’s a fair bet that those who blame Biden for higher energy prices will still be chanting “Let’s go Brandon” when they fall.

Policies do have an impact over time, and Biden’s bigger project of decarbonizing the economy will hit a wall if mandated shifts in 
energy supply aren’t matched by changes in demand. This is essential to the current political moment, too. Oil producers from Texas to Riyadh have tried to link such efforts to high energy prices today, even though:

• Frackers are sitting on almost 2,000 drilled-but-uncompleted wells in the Permian basin alone, lying fallow primarily because investors grew tired of lousy returns; 
• OPEC+ is sitting on several million barrels a day of spare capacity that it isn’t using because the economies of most members need all the oil rents they can get.

Not that this gives Biden an out. The laws of political physics mean that he, like many of his predecessors, will own the pain of higher prices, particularly in the context of energy transition.

This is what all the talk of intervention in the energy market is ultimately about. The administration is hoping winter will be kind and, even if not, that the analysis from the EIA (as well as OPEC and the International Energy Agency) projecting a looser market come 2022 proves correct. In the meantime, Biden will continue to signal that he feels Americans’ pain and hope the weather gods are with him. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.

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