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Rising US fuel prices are triggering alarm in Washington just as President Joe Biden steps up his bid for re-election by touting lower inflation and the strength of the US economy.
The surge in petrol costs to a nine-month high follows a 20 per cent jump in global crude prices this summer, after Saudi Arabia and Russia slashed supply. The move has revived predictions of $100 a barrel oil this year — and new worries about the political fallout.
“The White House is in full-blown panic mode,” said Bob McNally, head of Washington-based consultancy Rapidan Energy Group and a former adviser to president George W Bush. “Any sitting president is threatened when pump prices go up because of the impact on consumer confidence and the president’s approval rating.”
A White House official said the administration was continuing to closely monitor petrol prices, but added that it was “important to remember that prices are still down over $1 since their peak last summer”.
Saudi Arabia last week risked angering the White House by announcing that it would extend and potentially deepen existing oil production cuts, despite the International Energy Agency warning that crude markets are set to tighten significantly in the coming months. The kingdom followed up on Saturday by increasing the price of its oil it in Asia.
The Biden administration has repeatedly called on Riyadh to pump more oil in the past two years, and last year accused the Opec+ cartel of “aligning with Russia” when it launched its current phase of supply cuts.
The latest US pump price increases include diesel, a crucial input cost for industrial and agriculture sectors, and come as hopes rise that the Federal Reserve can engineer a soft landing for the economy after months of interest rate rises to quell inflation.
The president has spent recent weeks touting his “Bidenomics”, citing a cooling of inflation and record job creation.
But Republican opponents have latched on to the recent fuel price increases, blaming them on what Florida governor Ron DeSantis calls Biden’s “war on American energy” — a signal of future GOP attack lines if petrol costs keep rising.
International crude oil benchmark Brent hit a four-month high of $86.65 a barrel on Friday after Ukrainian drone strikes on military vessels at the Russian Black Sea oil port of Novorossiysk. A Russian oil tanker was later struck near Crimea, deepening fears that Ukraine’s counteroffensive could disrupt energy supply. US and international oil prices are close to their highs for the year.
Analysts at Goldman Sachs said last week that global oil demand hit a new record high of 102.8mn barrels a day in July, amid a surge in summer air and road travel, economic resilience in the US and India and stronger-than-expected oil demand from China.
“Fears around recession and China imploding have diminished tremendously in the last three to four weeks — and that has brought investor interest back into oil,” said Jeff Currie, global head of commodities research at Goldman.
Consultancy Enverus believes soaring global demand and weak supply growth will send Brent to $100 a barrel before year-end.
Average US petrol prices fell last year after jumping to a record high following Russia’s full-scale invasion of Ukraine. But they have risen almost 10 per cent in the past month, to $3.83 a gallon, and remain about 60 per cent higher than when Biden entered office.
Politicians from Washington to Europe are bracing for the fallout from renewed fuel price surges. The government of Rishi Sunak in the UK this week played up hopes that North Sea oil and gas deposits could increase energy security, despite commitments on climate change.
“If we go into the autumn with demand rising and supply tight, that will continue to have upward pressure,” said Dan Yergin, vice-chair of S&P Global. “And you can already see the hackles going up on the back of the necks of people in Washington.”
Market watchers are also concerned that Russia could choose to weaponise its oil exports next year to try and influence the US election, in a manner similar to its decision to cut gas supplies to Europe last year.
Republican presidential frontrunner Donald Trump has indicated he would try to compel Ukraine to negotiate with Russia if elected, and rising pump prices have the ability to influence close-run elections.
“Vladimir Putin is also the CEO of Russia Oil Inc and he understands the dynamics of the market very well,” Yergin said.
Analysts say the White House would have less firepower to contain new price jumps after drawing down emergency stockpiles last year to cool the oil market, leaving the Strategic Petroleum Reserve at its lowest level since 1984.
The US might need to ask Opec leader Saudi Arabia for help again, said analysts, although Biden has been less able to influence Riyadh’s oil supply policy than Trump.
“With SPR releases no longer an easy option to dampen prices, the fallback option is making sure there are better relations with Saudi Arabia to make sure Riyadh intervenes if oil prices get out of hand,” said Helima Croft at RBC Capital Markets.
Additional reporting from Felicia Schwartz