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Text | Market sweeping monks
Saudi Arabia and Russia's renewed efforts to push oil prices toward $100 a barrel could become another headache for President Joe Biden, who is making his record on the U.S. economy — and beating inflation — a central issue in his re-election campaign.
Brent crude prices topped $90 a barrel this week after Riyadh and Moscow extended supply cuts until the end of the year, the first time since 2023, even though oil prices have risen 25% since June as global demand hit record highs.
As the United States pursues a historic deal to normalize relations between Israel and Saudi Arabia and seeks to cement its alliance against Russia at this weekend's G20 meeting in India, Saudi Arabia's move to push up oil prices also threatens to restart a rift between Saudi Arabia and Washington.
Saudi Arabia doesn't have many friends in Washington right now. Raad Alkadiri, an analyst at the Eurasia Group in Washington, said: "If Washington wants to blame someone again for high oil prices or a slowdown in the economy, then Saudi Arabia is definitely likely to be the one who comes out on top." ”
For the White House, the extension of the tax cuts also comes at a delicate time at a time when the domestic situation is delicate, and the White House has been emphasizing that the strengthening economy and slowing inflation are signs that "Bidennomics" is working.
Oil prices often play an important role in voters' views of the economy, and analysts say a tightening in the oil market could push crude prices to $100 a barrel by the end of the year — and fuel costs will rise just as inflation in Western economies begins to ease.
Richard Bronze, co-founder of consultancy Energy Aspects, said: "The danger for the White House is that rising gasoline prices could reverse perceptions of an improvement and a pullback in inflation. ”
Further increases in gasoline prices would also complicate the Fed's job as it decides whether it needs to raise interest rates again this year — which have reached a 22-year high — to cool the economy.
Alan Detmeister, an economist at UBS and a former Fed staffer, said he expects a "considerable" increase in the consumer price index for August, released next week, due to rising gasoline prices. He also expects September's data to pick up again, which was released in October.
Slower price increases in other sectors may help offset energy-fueled inflation, but he said oil price movements could "easily" bring annual inflation in the U.S. back to at least 4 percent in September from the current 3.2 percent.
The pain of oil prices is already evident at U.S. gas stations, which have climbed nearly a quarter this year to $3.80 a gallon. This price is still below the record high of more than $5 set last summer, but still 60% higher than when Biden took office in January 2021.
Rising fuel prices provide a line of attack for Biden's Republican opponents ahead of next year's presidential election. They accuse the White House of prioritizing climate policy over domestic oil production.
"They are using the environment to destroy humanity. Liquid gold is under our feet. We are making big money. Donald Trump, the former president and frontrunner in the Republican primary, said in a recent interview with Newsmax: "We're going to drill, baby, drill wells.... We need to bring energy prices down dramatically. ”
Last year, after the full-scale conflict between Russia and Ukraine, the global energy price crisis raged, and the White House did everything in its power because gasoline prices rose to even more than $4 per gram, which is considered a politically sensitive threshold.
Biden's plea for shale drillers to extract more oil and then authorized the release of record federal emergency reserve crude into the market helped curb the sharp rise in oil prices.
But now these levers are not as effective as they used to be. The once-booming shale oil industry is now growing slowly, and the Strategic Petroleum Reserve has been cut to its lowest level since 1983. As global fuel demand soars, these factors have combined to make the oil market nervous, giving Saudi Arabia greater control over oil prices.
Former New Jersey Governor Chris Christie, who is running in the Republican primary, believes that Crown Prince Mohammed bin Salman "made this deal with Russia" to cut more oil supplies, and Biden's frosty relationship with Riyadh is to blame.
Speaking on Fox Business on Wednesday, Christie said: "The crown prince is sending a message to Joe Biden. "'You will not have good relations with us, well, we will have good relations with Russia'."
Energy traders have also questioned why Saudi Arabia is extending its oil cuts, given that oil prices have risen sharply over the past three months.
OPEC observers see Riyadh's position as nuanced, despite speculation about Riyadh's possible role in a tense U.S. election.
The crown prince is aiming to raise oil prices to pay for its costly Vision 2030 reform project, which includes the construction of the concept city of Neom on the Red Sea, as well as the purchase of superstars such as Cristiano Ronaldo.
"The reality is that the Saudi budget and the long-term ambitions of MBS require oil prices of $85 or more," Alkatiri said. "Projects like Neom won't be built on $70 a barrel of oil.
Analysts say the White House's efforts to rebuild relations with Riyadh are one reason the White House administration has reacted modestly to the production cuts announced this week.
This is in stark contrast to last October, when Saudi Arabia led OPEC and its allies in production cuts for the first time, prompting the White House to accuse the agency of "allying" with Russia after the conflict between Russia and Ukraine triggered the European energy crisis.
Biden's national security adviser, Jake Sullivan, said on Tuesday after Riyadh announced additional production cuts that the White House would continue to be "in regular contact with the Saudis."
But he also noted that the "ultimate measure" for judging Biden's success is "the price per gallon of gasoline for American consumers."
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【Important】Past performance is not indicative of future performance. The above views only represent the opinions of relevant authors or media, do not represent our position, nor do they constitute investment or commodity purchase advice for readers, and the content of the article is only for research and study. This article is from FT.