A renewed effort by Saudi Arabia and Russia to push oil prices toward $100 a barrel could prove another headache for U.S. President Joe Biden as he makes the U.S. economic record and curbing inflation central to his re-election campaign.
Brent crude oil topped $90 a barrel for the first time this week after Riyadh and Moscow extended output cuts until the end of the year, even as prices have risen 25 percent since June as global demand hit record highs.
The move by Saudi Arabia to push up oil prices also risks reopening a rift between Saudi Arabia and Washington, as the U.S. seeks a historic deal to normalize relations between Israel and Riyadh and tries to close this weekend’s G20 summit. G20) meeting to strengthen the alliance against Russia. India.
“The Saudis don’t have many friends in Washington right now. If Washington wants to put the blame for high oil prices or an economic slowdown on someone again, they could definitely be ‘evidence,'” said Washington Eurasia Group analyst Raad Alka Dili (Raad Alkadiri) said.
The extension of the cuts also comes at a delicate time domestically for the White House, which has highlighted a stronger economy and slower inflation as signs that “Bidenomics” are working.
Gasoline prices tend to play a huge role in how voters view the economy, and analysts say a tightening oil market could push crude to $100 a barrel by the end of the year, even as inflation in western economies begins to slow. driving up fuel costs.
“The danger for the White House is that higher gas prices could reverse the perception that things are improving and inflation is coming down,” said Richard Bronze, co-founder of consultancy Energy Aspects.
Any further rise in gasoline prices could also complicate the Fed’s job as it decides whether it needs to raise interest rates again this year, already at 22-year highs, to cool the economy.
Alan Detmeister, an economist at UBS and a former Fed staffer, said he expects a “pretty big jump” in consumer prices in August when the data is released next week due to rising gasoline costs. ” up. He also expects September data to rise again, due in October.
Slower price increases in other sectors could help offset energy-induced inflation, but he said oil price moves could “easily” lift U.S. inflation back to at least 4% in September, from 3.2% now.
The pain at gas stations in the U.S. is already evident, with prices rising by nearly a quarter this year to $3.80 a gallon. That’s still below the all-time high of more than $5 set last summer, but still 60% above where it will be when Biden takes office in January 2021.
Rising fuel prices — clearly visible in the glare of lights on major roads across the country — provide a line of attack for Biden’s Republican opponents ahead of next year’s presidential election. They accused the White House of prioritizing climate policy over domestic oil production.
“They’re using the environment to destroy humanity. We’ve got liquid gold under our feet. We’re getting rich. Then he shut it down,” former president and Republican primary front-runner Donald Trump said in a recent interview with Newsmax. “We’re going to drill, baby, drill…”. . We will bring energy prices down dramatically. “
The White House took emergency steps as gasoline prices rose to or above $4 a gram last year, a threshold seen as politically sensitive, as the global energy price crisis intensified following Russia’s all-out invasion of Ukraine.
Biden implored shale drillers to pump more oil, and then authorized the release to the market of record amounts of crude stored in federal emergency stockpiles to help stem a sharp rise in oil prices.
But those levers don’t work very well right now. The once-prolific shale oil industry is growing slowly and the Strategic Petroleum Reserve has fallen to its lowest level since 1983. The combination of these factors has helped tighten the oil market, giving Saudi Arabia greater leverage over prices as global fuel demand soars.
Former New Jersey Gov. Chris Christie, who is currently running in the Republican primary, said Biden’s frosty relationship with Riyadh was the reason Crown Prince Mohammed bin Salman “made this deal with Russia” to cut more oil supplies.
“The crown prince is sending a message to Joe Biden,” Christie said Wednesday on Fox Business. “‘You won’t have a good relationship with us, but we’ll have a good relationship with Russia’.”
Energy traders also questioned why Saudi Arabia would extend oil output cuts given that oil prices have risen sharply over the past three months.
OPEC watchers said the Saudi position was nuanced despite speculation about Riyadh’s possible role in the tense U.S. election.
The crown prince aims to raise oil prices to pay for his costly “Vision 2030” overhaul, which ranges from building a concept city of Nyom on the Red Sea to buying superstar footballers such as Cristiano Ronaldo.
“The reality is that the long-term goals of the Saudi budget and MBS will require an oil price of around $85 or higher,” Alkadiri said. “Projects like Neom are not built on $70 a barrel oil.”
Analysts said the White House’s efforts to rebuild ties with Riyadh — a departure from Biden’s campaign pledge to make the kingdom a pariah — was one reason the administration’s muted response to this week’s announcement of cuts.
That was in stark contrast to last October, when Saudi Arabia led OPEC and its allies to cut production for the first time, prompting the White House to accuse the cartel of being “allied” with Russia after it invaded Ukraine and sparked a European energy crisis.
After announcing the additional cuts in Riyadh on Tuesday, Biden’s national security adviser, Jack Sullivan, said the White House would continue to “engage regularly with the Saudis.”
But he also noted that the “ultimate measure” by which Biden’s success will be judged will be “the price per gallon of gasoline for American consumers.”
Biden is likely to meet Mohammed bin Salman at the Group of 20 (G20) meeting in New Delhi, but it has not been confirmed whether a formal bilateral meeting will take place.
“It seems like they’re playing the long game this time around and thinking strategically about the U.S.-Saudi relationship as more than an energy supply relationship,” said Kevin Book of Clearview Energy Partners in Washington.
“Normalization (between Israel and Saudi Arabia) seems to be more important than oil at $90 a barrel, but at $120 you might see a different outcome.”
Analysts said Saudi Arabia also wanted leverage in discussions with the White House. The kingdom has made a long list of demands, ranging from increased military support to support for a civilian nuclear program.
A pledge to intervene if oil prices get too high remains a strong card that Riyadh can wield. The company’s announcements included a monthly review of the cuts, which analysts said could be used as a bargaining chip in negotiations, especially as the campaign gets underway.
“I think Saudi Arabia has leverage on a lot of issues right now,” said Karen Young of Columbia University’s Center for Global Energy Policy. “The government is going into an election cycle and they have a lot of cards in their hands.”
Svlook