Biden won’t let oil prices drop below $67: Will gas prices go down?

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Biden says he won’t let oil prices drop below $67: Why he thinks that will lower gas prices

The Biden administration is in the oil business.

The White House announced Tuesday that it would release another 15 million barrels from the Strategic Petroleum Reserve, part of its six-month effort to use the federal government’s massive stockpile of oil as a tool to drive prices down. It also announced that it would look to refill the reserve with oil when prices fell to between $67 and $72, about $15 to $20 below where oil trades today. These purchases would be “adding to global demand when prices are around that range,” the White House said, avoiding a future fall in oil prices that could crash production, which happened in the early part of the covid-19 pandemic.

The Department of Energy would essentially be putting a floor on the price of oil, as part of an explicit effort to “encourage firms to invest in production right now, helping to improve U.S. energy security and bring down energy prices that have been driven up by Putin’s war in Ukraine,” the White House said in a release.

The announcements are yet another sign of how closely President Joe Biden and congressional Democrats’ political fates are tied to the price of gas at the pump, with polling in several key Senate races having tightened and as Republicans have retaken the lead in several polls.

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Perhaps not coincidentally, gas prices recently arrested their monthslong decline and are up from a month ago, putting the Biden administration in an awkward situation. It is arguably the most aggressive administration in combating climate change and passing policies with the goal of emitting less carbon — and thus burning less oil and natural gas — while also encouraging U.S. oil producers to ramp up drilling and pumping to drive down the price of gasoline.

To learn more about what exactly the Biden administration is doing to drive down the price of gas, how the U.S. is dealing with other oil exporters, and whether the oil and gas industry are really allies of the Biden administration, Grid spoke with Gregory Brew, Henry A. Kissinger postdoctoral fellow at Yale University and the author of the forthcoming “Petroleum and Progress in Iran: Oil, Development, and the Cold War.”

This interview has been edited for length and clarity.

Grid: Let’s start from the beginning. What did Joe Biden announce in terms of oil and gas prices?

Gregory Brew: President Biden made two announcements. One was a little bit more surprising and a little bit more significant than the other. The first announcement was the … release of 15 million barrels from the Strategic Petroleum Reserve. That was expected. It’s the last tranche in the release that started in March of 180 million barrels from the SPR, so that wasn’t really surprising.

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The slightly more surprising, and I would say more significant, announcement was the administration’s decision to refill the SPR at a specific price point. Their claim is that they will refill the SPR when oil is priced between $67 a barrel and $72 per barrel, essentially indicating that this is the soft floor that they would like to see for oil prices moving forward.

G: And what is significant about that $67 to $72 price?

GB: It’s significant for two reasons. First, it’s just a little historic for a U.S. administration to signal a preferred price for refilling the SPR. We’ve had to refill the SPR in the past, and generally, and according to law, the Department of Energy needs to seek crude oil at the lowest possible price in order to limit the cost to the U.S. taxpayer. This is a little bit unprecedented for the administration to be signaling a preferred price like this.

The other reason is the purpose of indicating this price. President Biden made that clear in his comments today, what the administration is trying to do is to signal to American oil and gas companies that they will not allow prices to fall under this level — and that, given this will be the soft floor for oil prices moving forward, this [price floor] provides U.S. oil and gas companies a good reason to start investing more and to start pumping more and to increase domestic oil production.

That’s what the administration is trying to do. They’re trying to signal to American companies that it’s OK to put capital discipline to one side and to start investing in new production again.

G: There have obviously been Republican presidents who are much more openly pro-oil and gas than a Democratic administration would be. You have someone like George W. Bush, who came from the oil and gas industry, and someone like Donald Trump, who talked about “energy dominance.” What is it that has caused the Biden administration to make this explicit effort to support U.S. oil production?

GB: The first and most politically salient issue is still the price of gasoline. I think this year has convinced Democrats in the administration that keeping the price of gasoline down is a major concern and that one way to do that is to increase U.S. oil production.

The U.S. is now the world’s largest oil producer, and it’s a significant oil exporter. This is an economic and geopolitical reality that I think has taken quite a while for U.S. politicians in the Republican and Democratic Party to come to terms with.

The Biden administration has signaled that yes, it understands the U.S. oil industry is large, its capacity for production is also large, that increasing U.S. production is a good way to get gas prices down and to keep American voters happy. So that’s the major reason why they’re taking this approach.

The other reason I think is a general view that the best way to accomplish the energy transition is to make energy as cheap and as abundant as possible. You see this reflected in other policies that the administration has taken. Just today, there was an announcement from the Department of Energy of investments in grants that are going to be made in increasing U.S. access to various critical minerals that are important for electric vehicle production and other energy transition technologies.


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This administration has a broad all-of-the-above approach to getting energy prices down, both to keep gasoline cheap but also to accelerate the energy transition. And you’re absolutely right, the oil industry is still a Republican industry. Oil companies are still very leery of this administration. I would characterize the relationship between the industry and the administration as sort of bubblingly hostile. There’s no love lost between a lot of oil executives and a lot of administration officials. But that doesn’t change the fact that the administration wants oil production to go up, they want prices to stabilize, and that this decision to refill the SPR at this level is a clear signal to oil companies that the administration shares their concerns about another price collapse and that they are going to work to prevent that from happening.

G: How do we put this action in the context of OPEC’s decision to cut production, and how has the U.S.’s new position as this massive oil producer and oil exporter that it’s attained over the last decade or so changed its relationship with OPEC?

GB: In terms of how this is a response to the production cuts from two weeks ago, had the United States — had the Biden administration — wanted to respond forcefully to the OPEC production cut, which of course was designed to take oil off the market and to raise prices, it did have a policy tool that it could have turned to. It could have decided to release even more oil from the Strategic Petroleum Reserve.

It chose not to do that, or at least it hasn’t chosen to do that yet.

Instead, it’s released a relatively small amount that was already scheduled to be released. And it signaled that it was prepared to refill the SPR at a price that, while lower than the current price, is not at the rock bottom level that some had feared would be the case.

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What the Biden administration is signaling is that it understands that the United States is now an oil market actor in a similar way that OPEC members or even Russia are oil market actors. So this is I would argue a slight step forward in the United States acknowledging its place in the global oil market, not only as a major consumer of oil, but also as a major oil producer.

G: It doesn’t seem like the U.S.’s position as an oil producer and oil exporter is really going change in the short to medium term. How does that line up with Democrats having commitments to decarbonization and climate change policy? Saudi Arabia and Russia are hardly climate champions, after all. How does the U.S.’s approach to the climate issue change when it’s economy looks more and more like a petroleum exporting one?

GB: There’s another part of the party — and I think Biden would fit within this part — that sees the approach to the energy transition as an all-of-the-above strategy that imagines, “Well, if we get gas cheap, if we can keep oil cheap, that will actually help the energy transition by keeping the cost of energy down, by facilitating low costs of inputs into other energy transition technologies and so forth.”

But I think this debate within the Democratic Party is still ongoing; I don’t think it’s been resolved. And you raise a good point, the stronger the American oil and gas industry become, the more the American economy begins to look like that of Saudi Arabia and Russia with a heavy influence of fossil fuel production and export.

And that’s only going to increase barriers to increasing the competitiveness of things like solar and wind, and geothermal and nuclear energy. So there is an obvious conflict within the Democratic Party’s approach to energy policy that still hasn’t been resolved. And it goes without saying that the Republican Party has made its allegiances to the oil and gas industry extremely clear.

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So were the Republicans to retake Congress or to retake the presidency in 2024, I think you’d see yet another shift in the approach to energy policy, one that would become much more favorable towards oil and gas interests.

Thanks to Lillian Barkley for copy editing this article.

  • Matthew Zeitlin
    Matthew Zeitlin

    Domestic Economics Reporter

    Matthew Zeitlin is an economics reporter at Grid focused on the domestic impact of major stories such as coronavirus, the supply chain and economic volatility.