Two months after U.S. President Joe Biden announced an unprecedented effort among major oil-consuming economies to work together to bring down rising fuel prices, prices are approaching multi-year highs. The global benchmark of Brent crude passed $84 a barrel on Wednesday, and leading analysts think that oil could pass $100 a barrel in the first quarter. O R Biden co-managed a coordinated release of oil from strategic reserves with Japan, India, South Korea, Britain and China in November that helped quell prices - even though China did not take part in it.
The effects were short-lived and dropped below $70 a barrel.
The United States is the biggest consumer of gasoline worldwide, burning about 9 million barrels per day bpd of motor fuel, a political headache for Biden and the US president because of rising oil prices. Crude prices make up about two thirds of the price of gasoline, making it an important part of consumers' budgets.
The Republicans point fingers at climate policies supported by Biden, a Democrat, for rising prices, but the reality is that the oil market is linked to global factors beyond the control of any U.S. political party.
The investors were expecting the Omicron coronavirus variant to have a limited impact on global economic activity, and they bought oil on the belief that it would have a limited impact on global economic activity. U.S. pump prices are about 80 cents a gallon lower than their all-time record hit in 2008, but they are expected to rise.
Worldwide oil demand recovered to pre-pandemic levels at around 99 million barrels per day, but supply is just over a million barrels per day short of that, according to the International Energy Association.
The combination of strong demand, weak investment and lack of spare capacity has caused prices to go up, according to economists. Russia, the Organization of the Petroleum Exporting Countries and its allies, have fallen short of targeted supply increases, according to the group known as the Organization of the Petroleum Exporting Countries.
Mike Tran, commodity strategist at RBC Capital Markets, said that OPEC remain steadfast in adding 400,000 barrels per day back to the market each month, but our data shows that monthly additions are closer to 250,000 barrels per day.
In the second half of 2021, US production averaged about 11.3 million barrels per day, compared with a peak of about 13 million barrels per day at the end of 2019.
Last year, Biden joined his predecessors who at one time or another pressed OPEC to raise output with variable success.
The president announced several steps to try to bring fuel prices down in November. The White House, along with Japan, South Korea and India, has announced the release of barrels from its strategic reserves.
Biden had said that China would be involved, but the country, the world's largest crude importer, said it would sell from its reserves on its own schedule.
The group cut supply by 9.7 million barrels per day in early 2020 as the epidemic broke out. It has slowly restored output, but currentlyOPEC is still withholding more than 3 million barrels per day in supply.
Biden could increase sales from the U.S. Strategic Petroleum Reserve SPR. However, that supply is limited and pales in comparison to the size of the global market.
SPR crude inventories have fallen to 593 million barrels, their lowest since November 2002.
Biden's announcement in November was for a release of 50 million barrels of sales and loans - about half of a day of global consumption.
The president could consider a federal gas tax holiday, the federal excise on gasoline is 18.4 cents a gallon.
In 2008, lawmakers floated this idea in response to a surge in gasoline costs to more than $4 a gallon, but because refiners can't produce more gasoline, such a move would likely boost demand, which would ultimately send prices higher, economists have argued.