Biden goes to the mat with Big Oil over gas prices

The government’s efforts to keep pump prices low underscore how intertwined the cost of gas and electoral fortunes are for the party in power. They also illustrate how limited policy options are for the White House resident.

A mix of factors outside the government’s control is driving fuel prices, analysts say. Among them are refinery shutdowns in California and the Midwest, tightening European sanctions against Russia, entrenched supply-demand imbalances, and OPEC’s recent decision to defy the White House and cut oil production. So the White House has opted for a long-running strategy of arm-run — publicly berating oil companies while privately pressuring their executives.

The offensive comes as the cost of gas rose again across the country, wiping out weeks of declines that President Joe Biden had championed as proof that his economic policies were working. While that trend has waned in recent days, the longer-term picture looks bleak, alarming officials worrying that fluctuating prices could wreak havoc on Democrats’ medium-term opportunities for 11 hours.

“If you own it on the way up, you own it on the way down,” said Tobin Marcus, a former Biden adviser and current senior policy and political strategist at Evercore ISI. “They’ve put in a lot of political mileage highlighting the sharp improvements over the summer … and now they have to make the best of a sub-optimal situation.”

The average gas price is now $3.87 a gallon, about 20 cents higher than a month ago. In more than a dozen states, prices have crossed a $4 mark that Biden allies view as particularly inconvenient for a Democratic party trying to sell voters to an improving economy.

Biden and his advisers have fixated on the political importance of the cost of gas, believing it determines how voters feel about the economy. Lacking immediate policy solutions, they have turned their fire on the industry, attacking oil companies for collecting record profits and suggesting that they could single-handedly lower gas prices, if not for their own greed.

Biden immediately urged oil and gas companies to cut prices in late September, accusing them of profiting excessively from higher fuel costs, even as world oil prices fell.

“Reduce the prices you charge at the pump to reflect the cost you pay for the product,” he said. “Do it now. Not even a month from now. Do it now.”

More recently, Secretary of Energy Jennifer Granholm expelled oil giant ExxonMobil after objecting to government demands that the industry restrict exports abroad in favor of boosting supply in the U.S.

“These companies need to focus less on taking every last dollar off the table, and more on passing savings on to their customers,” Granholm said, adding that ExxonMobil “is misinterpreting the moment we are in.”

In a statement, White House spokesman Abdullah Hasan characterized the government’s aggressiveness toward industry as aimed at “advancing the interests of the American people — whether that meant asking industry for their ideas to increase oil and gas production, or proclaimed record profit margins in times of war.”

Senior Biden officials — including National Economic Council director Brian Deese and top State Department adviser Amos Hochstein — have been even more persistent privately, repeatedly pressuring industry representatives to find new ways to cut prices, people familiar with the discussions said.

While the administration has always kept an open channel to the industry, the public figures said the talks have become more blunt and frequent of late — with officials growing increasingly convinced that companies could do more.

That sparked protests from the oil and gas industry that there’s little it can do to single-handedly move prices, especially on the government’s accelerated timeline. Energy market experts largely agree, noting that prices are influenced by a range of global dynamics and companies cannot produce more oil on a whim.

“You can yell at them all you want,” said Ryan Kellogg, an economist and professor at the University of Chicago’s Harris School of Public Policy. “There is no knob you can turn that immediately causes a lot of oil to come out of the ground.”

But Biden’s aides remain undeterred. Publicly and in the private sector, officials have complained that oil refineries have been slow to restart facilities, pressured to ramp up production as quickly as they shut it down when demand began to decline early in the pandemic. They have also focused on the time it takes to translate lower oil prices into cheaper gas for consumers, arguing that energy companies and retailers should reflect the savings when oil prices fall as quickly as they raise prices when oil markets rise.

“We are still not at the pre-pandemic level” [of supply] and yet the demand is almost there,” said an Energy Department official involved in the talks, adding that persistently low supplies are at the heart of the government’s frustration. “We really need to understand what’s holding the industry back.”

The more aggressive turn has shown little measurable progress of late, although a government official said the refinery’s restart has improved somewhat this year. But it has further soured the already frosty relationship between the government and the oil industry. A senior industry official, who granted anonymity to talk candidly about the White House, questioned Biden employees’ understanding of the energy markets. The person summed up the intense focus on daily price swings when the administration “asks the wrong questions and takes the wrong steps.”

Another industry official said that, despite months of discussions, Biden and the industry are very close to agreeing on policies they believe could lower fuel costs.

“We value an open commitment to administration,” said Frank Macchiarola, senior vice president of policy, economics and regulation at the American Petroleum Institute. “But the government must change its policy and stop its price-gouging rhetoric that has been consistently debunked.”

Still, the approach has excited some Democrats who have long believed the White House should take a tougher line with the oil industry over its excessive profits — a tactic they believe could also help ward off frustration with gas prices. that voters could otherwise train on Biden himself.

Several Democratic lawmakers, as well as California Governor Gavin Newsom, have called for a tax to be imposed on the so-called unexpected profits that oil companies earn from high prices.

Rep. Ro Khanna (D-Calif.), an early advocate for the windfall tax, told POLITICO he is now working on a bill that would curb the export of refined gasoline after the Biden administration said it was open to it. idea.

The White House must fully embrace either an unexpected profit tax or an export ban, both of which represent major interventions that experts and some officials fear could backfire and drive prices up by destabilizing oil markets and the delicate geopolitical landscape. Aid workers, for example, are wary that restricting exports could harm European allies already facing high energy costs due to their sanctions against Russia.

But even if it doesn’t translate into new policies or make a measurable dent in gas prices, Democrats insist it’s worth the potential political reward for keeping the oil industry under pressure.

“They’re trying to keep it from getting worse than it needs to be as a political issue between now and the finish of the midterms,” ​​Marcus said. “Political stories work best when there is an identifiable villain.”

Ben Lefebvre contributed to this report.

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