If President Biden is having nightmares, he probably wakes up in the middle of the night terrified of gas prices.
Rising gas prices – up 50% over the past year to about $ 3.50 a gallon – forced Biden to announce the release of 50 million barrels of oil from the U.S. national stockpile on November 23. Prior to the announcement, crude oil futures were trading at around $ 76. a barrel. After Biden’s announcement, crude futures hit around $ 78 a barrel. Whoops.
Prices have gone up rather than down for several reasons. Biden’s move had been rumored beforehand and some traders guessed that the exit could look more like 100 million barrels, double what Biden had announced. The markets had therefore braced for more new offers than Biden’s move would provide. The additional supply could also cause the oil-producing countries of the OPEC + cartel to cut production, as most of these countries prefer higher oil prices, not lower prices.
Then Biden apparently took a break, when a post-Thanksgiving sell-off lowered the price of oil and most other globally traded assets. But that’s not the kind of price cut Biden wants. Markets are selling for fear of the new strain of COVID in South Africa and fear it will cause further bottlenecks and block the global recovery if it spreads. Another COVID-related slowdown would likely be worse news for Biden – and many other executives – than high gas prices.
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If the markets recover from the fear of South Africa, oil prices are likely to recover. This could leave Biden with a worse conundrum than if he did nothing, as it looks like his efforts to cut oil and gas prices have turned against him. Voters are already losing faith in Biden due to pandemic shortages, inflation and lingering COVID issues. If it looks like Biden is actually making a key issue worse, that could hamper Biden for the rest of his presidency.
It’s no surprise that Republicans are exploiting higher gas prices for ding Biden and claiming his green energy policies are causing pain at the pumps. This is not really true. Gas prices in the United States are rising alongside oil prices, which are set by global supply and demand. A strong global recovery, coupled with tight supplies, was the main cause of the price increase. For Biden, however, it doesn’t really matter. Voters are uncomfortable and will blame whoever is responsible. It’s him.
Most analysts believe the new oil Biden plans to release will have little or no impact on global prices or gasoline costs in the United States. It just isn’t enough oil. The world consumes 98 million barrels of oil per day. The Biden version is barely half a day’s consumption. Other countries including the UK, India, China, South Korea and Japan will also release oil, but that will likely be less than the US contribution.
What Biden has done, however, is take action that will appear to be a causal trigger, regardless of which direction oil and gas prices are going. The risk of backfire is offset by the possibility that prices will drop in 2022 for reasons unrelated to Biden. The US Energy Information Administration, for example, predicts a decline in oil prices of about 12% in 2022, as supply catches up with demand. This would allow Biden to claim credit for a development that benefits consumers, even if other factors were to blame.
Presidents get blamed when they don’t deserve it, but they also claim credit when things are going well.
Rick Newman is the author of four books, including “Rebounders: How Winners Go From Failure To Success.”Follow him on Twitter: @rickjnewman. You can also send confidential advice.
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