Biden asks US oil companies to increase production

A very political announcement

This announcement comes in an electoral context that is tense to say the least. Biden’s remarks come two weeks after the decision by OPEC+ – bringing together the oil cartel and its allies, led by Russia – to lower their oil production quotas. A cartel policy that looks like a snub for Joe Biden, who used – in vain – a lot of diplomacy with Saudi Arabia to try to obtain an increase in production.

However, the tenant of the White House fears that the OPEC + decision will lead to a new surge in fuel prices – and therefore a new rise in inflation – just before the November 8 election, crucial for the end of his first mandate.

Urgent to increase US oil production according to Biden

It is urgent to “reasonably increase American oil production”, launched the president. Without forgetting, however, to be respectful of the environment, adding that the increase in domestic production should take place “without delaying” the “transition of the United States to clean energy”.

Refiners and distributors singled out

Joe Biden has also renewed his criticism of certain industrial players in the hydrocarbon sector. “Refiner profits are double their usual. And distributor margins are more than 40% above the norm,” following his press conference.

The United States will again draw on its strategic reserves

Another major announcement from the United States: the confirmation that an additional 15 million barrels will be drawn from its strategic reserves. Stated objective: to try to relieve crude oil prices.

The release will be carried out in December, it constitutes the last tranche of the program announced last spring by Biden, which planned to release a total of 180 million barrels to cope with the surge in prices linked to the invasion of Ukraine by the Russia.

Mechanism to replenish reserves

At the same time, Washington plans to set up a mechanism aimed at replenishing the strategic reserves in the long term. With this in mind, the American government will buy back crude oil when the price of a barrel of WTI (West Texas Intermediate), the American benchmark, is contained within a range of between 67 and 72 dollars.

According to a government official, the Biden administration plans to negotiate pre-agreed price buyout contracts through an auction process, which should limit the risks associated with price volatility.

Since the beginning of September 2021, the United States has extracted more than 212 million barrels of strategic reserves, which have not been at such a low level since June 1984. Never has a president released such quantities since the creation of these reserves, in 1975.

Our opinion, by

While it has fallen 22% since its peak in mid-June, the price of regular gasoline remains 16% above its October 2021 level in the United States.

At the same time, diesel has only fallen back moderately since June, due to very low stocks, and costs 50% more on average than a year ago.

Enough to make inflation “gallop”, to the great displeasure of US consumers: an economic context that is to say the least “delicate” for Joe Biden before crucial elections.

Source: AFP

Leave a Comment