Financial Energy Review
……..By Dino Grandoni…….
……………Neither Biden nor President Trump have a secret lever at the Resolute Desk that makes the price of oil go drastically up or down…………….
.A dubious meme has emerged online in conservative circles: The price of gasoline will spike because Joe Biden is taking office.
The theory is that the president-elect’s coming efforts to wean the United States off oil will nail people’s pocketbooks. Conservative corners of Facebook are filled with viral photos of gas station signs with prices above $5 a gallon. “Just a reminder of what things looked like the last time Biden was in the White House,” reads one image.
But this vastly overstates a president’s power to control the cost of a commodity traded on a world market. Although a president’s actions — including Biden’s climate policies — can nudge the price of oil, the effect is marginal at best, experts say.
“The scale of the global oil market,” said Pavel Molchanov, an oil analyst at Raymond James, “is so massive that it would be extremely unlikely for any single political decision, anywhere in the world, to materially affect oil prices.”
A sign reading “If your fridge is running I’ll vote for it” is displayed alongside gas prices in Bradley, S.D. (Reuters/Bing Guan)
A sign reading “If your fridge is running I’ll vote for it” is displayed alongside gas prices in Bradley, S.D. (Reuters/Bing Guan)
Simply put, neither Biden nor President Trump have a secret lever at the Resolute Desk that makes the price of oil go drastically up or down.
The idea of a forthcoming gas price spike is fueled by Trump himself as a piece of his broader criticism of the Democrat’s plan for tackling climate change. “If Biden got in, you’d be paying $7, $8, $9,” Trump said the day before Election Day at a rally in Grand Rapids, Mich. “Then they’d say, ‘Get rid of your car.’ ”
As Trump likes to brag, gas prices — currently a little above $2 a gallon nationally — indeed have been down during the last year of his term.
But that’s because the coronavirus pandemic has devastated demand for oil as people everywhere fly and drive less often. Although prices recovered a bit over the summer, things got so bad in April that the price per barrel of West Texas Intermediate crude briefly went negative for the first time ever.
Biden wants a “transition” away from oil. But that will have a mixed effect on the petroleum prices.
The former vice president is planning to reorient the government toward cutting greenhouse gas emissions and moving toward cleaner sources of energy.
One way he will do that is through tighter rules on leaks of methane from wells and restrictions on drilling on federal lands. Those new regulations may squeeze oil supply and lift gas prices. “Perhaps in a couple of years, depending on Biden’s policy, there could be more an impact than there will be when he takes office,” said Patrick DeHaan, an oil analyst at GasBuddy.com.
But other potential moves by Biden — such as cranking up requirements on automakers to make more fuel-efficient vehicles or boosting incentives to buy electric cars — probably will reduce demand for gasoline and put downward pressure on prices.
Jim Burkhard, head of crude oil research at IHS Markit, said fuel-economy standards are “a very powerful force” in reducing demand. “It doesn’t have an impact overnight or in a year, but it has a cumulative impact over time.”
The Biden administration’s stance toward Iran could result in incrementally lower gas prices.
The former vice president has said he wants to ease tensions with the U.S. nemesis by potentially returning to a nuclear weapons deal brokered under his old boss, President Barack Obama.
Lifting economic sanctions against the country could have the side effect of uncorking more Middle Eastern crude oil into the world market, potentially reducing prices, Molchanov said.
“But in the grand scheme of things, the impact on the price that drivers see at the pump would be barely measurable: a few pennies per gallon, in either direction,” he added. “All of this pales in comparison to the impact of the pandemic.”
There is one key way Biden can have a pretty big impact on the price at the pump: getting the coronavirus under control.
The wide distribution of an effective vaccine would make people feel safe to return to their normal, energy-consuming routines commuting to work and flying cross-country again.
“Forget the energy transition issues,” Burkhard said. “Containing covid in 2021, if the Biden administration is able to do that successfully — that would boost oil demand, and therefore that would boost oil prices.”
Power plays
Biden’s response to climate change will span government agencies.
“President-elect Joe Biden is poised to embed action on climate change across the breadth of the federal government, from the departments of Agriculture to Treasury to State — expanding it beyond environmental agencies to speed U.S. efforts to mitigate global warming and to acknowledge that the problem touches many aspects of American life,” our colleagues Juliet Eilperin and Annie Linskey report. “The far-reaching strategy is aimed at making significant cuts in greenhouse gas emissions even without congressional action, by maximizing executive authority.”
A team of former Obama administration officials recently presented Biden’s transition team with a 300-page blueprint for how the incoming administration can restructure the government to address climate change. The blueprint calls for creating a White House National Climate Council, establishing a “carbon bank” under the USDA that could pay farmers to store carbon in their soils and lands, and leveraging the Treasury Department’s tax, budget and regulatory policies to promote carbon reductions.
