US and China move to cool oil prices
New York (CNN Business)Nearly a dozen Congressional Democrats are urging President Joe Biden to combat high gas prices by not only releasing barrels from the US Strategic Petroleum Reserve but by banning US oil exports, according to a letter viewed by CNN.
The letter sent Monday to Biden adds to the pressure the White House is facing even from its own party to lower prices at the pump that are angering Americans and contributing to the biggest inflation spike in decades.
Calling the matter an “urgent issue,” House Democrats led by California Rep. Ro Khanna called for Biden to ensure “affordable and reliable energy for American families.”
“We must use all tools at our disposal to bring down gasoline prices in the short term,” reads the letter, which was also signed by eight other Democrats, including Reps. Barbara Lee, Katie Porter, Darren Soto and others. Senate Democrats sent Biden a similar letter earlier this month.
‘Not a panacea’
Biden could be ready to use one of those tools as soon as Tuesday.
Biden hopes to announce his decision to release oil from the SPR in an economic speech on Tuesday, officials told CNN. However, the timing of such a move is contingent on the other nations finalizing their agreements to do the same, officials said.
The specter of the United States, and potentially other nations, releasing emergency barrels has already helped to lower oil prices. After topping $85 a barrel in late October, US oil prices have declined about 10%. That in turn has helped put a lid on surging gasoline prices. The national average is $3.41 a gallon, roughly flat with a week ago, according to AAA.
“Our primary responsibility is how do we bring the cost down for working class Americans,” Khanna told CNN in a phone interview. “This is something that people are upset about. We need to address that concern.”
However, even proponents of tapping the SPR acknowledge it isn’t a long-term fix. It’s more of a band-aid.
That’s because there is a finite amount of oil in emergency reserves. And releasing barrels won’t solve the underlying supply-demand imbalance caused by surging demand amid the economic recovery and lackluster supply from OPEC, the United States and other major producers.
“It’s not going to be a panacea. But we’ve got to do what we can,” Khanna said in the interview.
Would export ban help — or hurt?
But the House Democrats suggest Biden should seriously consider the more dramatic step of banning oil exports — even though multiple industry experts have warned such a step could backfire on US consumers.
“A ban on US crude oil exports will boost domestic supply and put downward pressure on prices for American families,” the letter from House Democrats said.
This idea has reached the top levels of the Biden administration. The soaring costs of gasoline so alarmed White House chief of staff Ron Klain at one point that he suggested taking the dramatic step of halting US oil exports to drive costs down, one official told CNN. Administration officials believe they could secure an agreement on a coordinated release that wouldn’t require banning exports.
However, Goldman Sachs told clients last month that an export ban would likely be “counterproductive” and have a “likely bullish impact” on retail fuel prices.
That’s because oil is a globally traded commodity and US gas prices are set by Brent, the world benchmark. If the world lost access to US barrels, Brent prices would likely rise due to less supply.
And US oil refiners can’t rely on domestic oil alone to produce the diesel, jet fuel and gasoline that the economy relies on. Refineries blend US oil with foreign barrels to churn out these products.
Khanna cast doubt on the analysis from industry experts, arguing they could be conflicted in warning against oil export bans.
Yet even Mark Zandi, an economist frequently cited by the White House, is skeptical.
“I’m not a fan of banning oil exports,” Zandi, the chief economist at Moody’s Analytics, told CNN in an email. “I doubt it will meaningfully lower gasoline prices, as the price of gas is largely determined by global oil prices and not the price of domestically produced oil. It is also unclear whether domestic refineries would be able to efficiently process the type of oil that the U.S. exports.”
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