Why Biden wants to take a page from Trump’s OPEC playbook
No president wants oil prices to skyrocket. But timing is particularly problematic, as consumer spending can worsen inflation concerns and hurt Americans in their wallets, just as consumer spending can drive an economic recovery from Covid.
The alarm bells are definitely ringing at Biden’s White House.
A spokeswoman told CNN on Monday that the administration is “monitoring” OPEC + negotiations and that authorities are seeking a “compromise” that will pave the way for the group to increase production.
So far, the Biden administration has taken a hands-off approach with OPEC, unlike former President Trump, who is famous for repeatedly criticizing OPEC for being obsessed with monitoring financial markets and was unable to pump enough oil. I adopted it.
Some analysts claim Team Biden appeared to be captured in the OPEC drama with flat feet.
Helima Croft, Global Head of Commodity Strategy at RBC Capital Markets, said: “The Biden administration’s early warning system was not commensurate with that of the Trump administration. They may not have understood how potentially important the OPEC meeting was. “
OPEC 180 playing cards
But don’t expect OPEC-threatening All Caps tweets, given the stylistic difference to Biden’s more exaggerated Trump.
“They are not engaged in Twitter diplomacy,” said Croft, a former CIA analyst. “It’s a traditional playbook where you pick up the phone and ask.”
Trump’s interventionist approach continued into April 2020, when oil prices first fell below zero. Realizing that clean oil prices threatened jobs in major Republican states, Trump made an incredibly shocking 180, successfully encouraging OPEC oil production.
“It was one of the most amazing epiphanies of modern energy diplomacy,” said McNally, a former energy player under former President George W. Bush. “OPEC’s sworn enemy has become the master of trade: they are cutting back on production. It belongs to human dogs.
The situation in the energy market is no different today. After collapsing during the outbreak of Covid, demand for energy is skyrocketing as Americans hit the skies and roads.
But the offer cannot follow. OPEC + continues to curb production interrupted last year. OPEC pumped 25.5 million barrels per day in May, a significant drop from the 2019 average of 29.3 million barrels.
“Very low” oil reserves
Observers largely agreed that OPEC needed to produce more oil, but the group could not come to an agreement. What was supposed to be a one-day meeting was in dire straits three days later, no deal was visible. OPEC’s third-largest producer, the United Arab Emirates, is in dispute with Saudi Arabia and Russia over the structure of the deal.
Goldman Sachs reported to customers on Tuesday that the “big deficit” in the oil market requires an additional 5 million barrels of production per day worldwide.
Without this supply, the world’s oil reserves would collapse to “very low levels,” Wall Street banks have warned.
Biden can confidently say against OPEC + that very high oil prices are not good for everyone. Eventually people will stop traveling so much. This could push even more drivers to replace their gas SUVs with electric vehicles.
As vice president to former President Obama, Biden knows firsthand how these conversations are going. In 2011, when the war in Libya escalated, Obama urged OPEC to increase production.
Why the American shale does not come to the rescue
Ten years later, Biden believes the United States is still in dire need of OPEC, despite the fact that American oil production has skyrocketed under Obama and Trump.
Although the US economy is booming, US oil production has fallen by about 2 million barrels per day from last year’s record.
Fracker’s slow recovery mirrors the role of Wall Street. Investors are demanding that U.S. shale companies finally show discipline ten years after the massive amount of money was blown. If they suddenly pursue a higher price, their stock price will be punished.
“Shale cannot come to the rescue and needs OPEC to stop prices soaring,” said Croft, RBC strategist. “In 2015, people wrote an obituary on OPEC because of the shale, but now OPEC is in the driver’s seat.”
What about the climate crisis?
Biden’s demand for more pumping of oil from OPEC is troublesome given his administration’s focus on the climate crisis. Environmental activists want to reduce oil production, not increase it.
“If Biden demands more production, it will upset environmentalists,” said Greg Barriere, chief US policy strategist at AGF Investments. “Right now, I don’t know Biden’s easy answer.”
So it may not be fair, but Republicans see an opportunity to attack Biden for promoting clean energy.
Biden must balance his lofty climate ambitions with the harsh reality that the US economy is still heavily dependent on fossil fuels, let alone the possibility of re-election.
“The tough politics of energy transitions are clearly visible,” Croft said. “No one said it was easy.”