Since gasoline prices began to soar late last year, the US administration has said it will consider and potentially use every tool at its disposal to bring down prices at the pump. The problem for the Biden administration — and for American drivers — is that there is no short-term solution to soaring gas prices that are setting new records day after day. Each tool at Biden’s disposal has its own downsides and policy consequences, and each move the administration considers isn’t likely to drive gas prices too low, analysts and White House insiders say.
The only “solution” to record gasoline prices is not what American policymakers and consumers want: a recession. And that’s now a distinct possibility, although not a baseline scenario for most analysts.
Still, the odds of a recession are rising, warn investment banks and analysts.
JPMorgan Chase, for example, warned this week that a “hurricane” could hit the economy with the Fed starting to pull cash out of the system and Russia’s invasion of Ukraine could push oil prices to 150. dollars, even $175 a barrel.
“Right now the weather is pretty good, so good, everyone thinks the Fed can handle this,” JPMorgan Chase CEO Jamie Dimon said. said at a financial conference this week, carried by CNBC.
“This hurricane is right out there, up the road, coming our way,” Dimon added, warning, “You better be prepared.”
Yet a recession is not inevitable, says Goldman Sachs, for example.
“We believe that fears of a decline in economic activity this year will prove to be overblown unless further negative shocks materialize,” Goldman Sachs economists wrote in a statement. report as of May 30.
“We continue to expect slower but not recessive growth, with a trade-related rebound to +2.8% in the second quarter followed by average growth of +1.6% over the next four quarters,” said Goldman Sachs.
If the United States avoids a recession and a subsequent decline in oil consumption, the administration does not have the tools to influence the price of oil, which is the primary determinant of gasoline price trends in the United States. United.
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Of course, the White House praised OPEC+, and Saudi Arabia in particular, after the group, including Russia, decided to speed up monthly production increases to 648,000 bpd in July and August, compared to a monthly increase of 432,000 bpd so far.
“We recognize Saudi Arabia’s role as the chair of OPEC+ and its largest producer in achieving this consensus among the group’s members. The United States will continue to use all tools at its disposal to address energy price pressures,” White House press secretary Karine Jean-Pierre said Thursday.
Yet the administration still doesn’t really have the “tools” that would significantly lower gas prices in America. Global supply is constrained because Europe is now sourcing increasing volumes of non-Russian maritime crude, global refining capacity has shrunk by a few million bpd since COVID, and fuel inventories in the United States are at its lowest for several years.
Gasoline prices are the biggest obsession in the White House right now, with aides considering various measures – from limiting oil exports to relaxing environmental rules for gasoline content – none of which will do. significantly lower prices at the pump.
“We are going to take every action possible that will make a meaningful difference,” a White House official said. Politics this week. But the official added: “While understanding and dealing with the reality that global oil prices and gas prices are controlled by forces much larger than anyone else.”
Each option the administration is considering comes with its own complicated and potentially painful political trade-offs and trade-offs, and those options might not even lead to lower gas prices, sources familiar with the House discussions told Politico. White.
“What they have is a whole bunch of 10-cent policies,” Claudia Sahm, a former Federal Reserve economist and member of the Obama administration’s Council of Economic Advisers, told Politico.
Meanwhile, the national average gasoline price hit another record high at $4.715 a gallon Thursday. That’s up from $3.041/gal this time last year.
With less than $0.25 instead of $5.00, the national average could reach $5/gal around June 17, Patrick De Haan, head of oil analysis for fuel-saving app GasBuddy, said Thursday.
$5 gas will certainly be politically painful for the Biden administration. Yet the only short-term “solution” is a fall in demand for oil during a recession, an even more painful outcome for the economy, jobs and consumers.
By Tsvetana Paraskova for Oilprice.com
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