The White House reached out to OPEC+ to boost oil production in an effort to prevent a further rise in gasoline prices. The move set off a bit of a political storm in Washington, although the fire came both from the White House’s political left and right.
Looking beyond the tedious news cycle outrage, the outreach to OPEC+ illustrates the U.S. government’s challenge with oil dependence, and its desire to have it both ways when it comes to decarbonization and low fuel prices.
Calling on OPEC+
Oil prices are a bit below the multi-year highs set a few weeks ago, and there is disagreement over the trajectory of the oil market over the next few months.
As Goldman Sachs pointed out in a note to clients, the request from the White House comes as the negotiations with Iran have faltered, reducing the likelihood that Iranian oil comes back to the market in the near-term. The bank said that higher OPEC+ productions might be needed and that higher prices are likely.
On the other hand, Standard Chartered stated there is “some strong evidence that the oil market is not tight and that demand is softening.” The Delta variant is wrecking the bullish outlook.
“Higher gasoline costs, if left unchecked, risk harming the ongoing global recovery.”
Prices are apparently uncomfortable enough for the White House. “Higher gasoline costs, if left unchecked, risk harming the ongoing global recovery,” National Security Advisor Jake Sullivan said in a statement on August 11. “We are engaging with relevant OPEC+ members on the importance of competitive markets in setting prices…OPEC+ must do more to support the recovery.”
The Trump administration frequently pressured OPEC+ to pump more oil in order to keep prices low, but the Trump White House did not have any pretense about trying to cut oil use or greenhouse gas emissions. As such, the Biden administration faced immediate criticism from its pleas to the oil cartel.
Oil industry proponents seized on the statement from the White House, saying that it’s “outrageous” that the U.S. would ask OPEC+ to increase production when “American producers making American oil and gas” can do it, if only the Biden administration would get out of the way, as the American Petroleum Institute’s CEO Mike Sommers put it on CNBC.
He used the chance to criticize the freeze on new oil and gas leases on public lands that the Interior Department announced at the start of the year. That issue has been a particular bother to the oil lobby, which has repeatedly cited it as the cause of higher gasoline prices.
That argument is disingenuous, however, as drillers have stockpiled thousands of leases, enough to last them for years. Many are unused. As a result, oil analysts have said that a leasing moratorium would have a “negligible” impact on the industry, even in the long-term.
In any event, the Interior Department approved around 2,500 drilling permits in the first half of the year, the fastest pace since the George W. Bush administration. It’s unclear what exactly the Biden administration has done to hobble drilling.
In a note to clients, Commerzbank said that the call on OPEC+ actually points to the weakness of U.S. shale, who no longer can make a claim at being some sort of “swing producer.”
“After all, the US government could otherwise have simply called upon its own oil producers to expand production,” the bank said.
If anything, financial markets and investors – and the industry’s struggle at profitability – are the ones that are keeping some American oil on the sidelines.
Oil and climate goals
But the request for more oil from OPEC+ also garnered heat from the other side of the political spectrum.
More oil and lower prices is not going to help the effort to cut demand.
President Biden has championed climate action, and its overarching climate goal is to slash greenhouse gas emissions in half by 2030. But asking an oil cartel to pump more oil seems to undercut those aspirations. A headline in the New Republic stated: “Playing Nice With the Fossil Fuel Industry is Climate Denial.”
“These politicians don’t dispute that the climate is changing, but they are absolutely in denial about what curbing it would entail,” Kate Aronoff wrote.
Needless to say, more oil and lower prices is not going to help the effort to cut demand, which, given the worsening climate crisis, needs to happen at lightning speed.
In a statement to the Huffington Post, a White House official said the administration needs “to do two things at once: Achieve our climate goals while ensuring the energy transition is one that takes into account the interests of the middle class, who experience changes in energy prices very directly, and meet global energy needs as the economy recovers from the pandemic.”
These two goals are difficult to achieve simultaneously and in some ways are irreconcilable.
The request to OPEC+ underscores the challenges that the administration has in cutting the roughly 20 million barrels per day that the U.S. consumes.
But to achieve decarbonization goals, the U.S. is going to need to push hard on both the supply and demand side of the equations as the climate crisis demands. It won’t be easy, and there are political risks to be sure, but the U.S. cannot have it both ways.