The US has promised to respond to the Opec+ decision to slash oil production, but President Joe Biden has few meaningful options to ease the impact of the historic cuts, analysts warned.
Last week’s move by the Opec cartel and allied producers to reduce the group’s daily production target by 2 million barrels has already pushed up oil prices. Biden, who is trying to transition America away from fossil fuels, wants to keep domestic petrol prices down, especially before the US midterm elections next month, but must also consider the impact on Europe of any action.
Washington could revive anti-cartel legislation against the Saudi-led group and make additional releases from the national strategic petroleum reserve. It could also limit American energy companies’ exports if shortages emerge or loosen sanctions on pariah oil producers like Venezuela and Iran.
However, Karen Young, senior research fellow at Columbia University’s Center on Global Energy Policy, said many of these interventions are forms of price manipulation that do not solve longer-term global energy needs.
“All of these mechanisms are all forms in one way or another of market manipulation,” she said. “It doesn’t focus on what might be better for all of us to do — to think about the demand side, how do we really go about reducing demand for oil and gas.”
Biden administration officials are also urging US oil producers to increase their own output, although they have been reluctant to do so amid pressure from Wall Street to return profits to shareholders rather than reinvest in boosting production.
The Biden administration said last week that it is considering additional releases from its strategic reserve. Analysts have credited the millions of barrels released so far this year with helping to bring down prices, but say they are a temporary fix that does not help create new production or spur investment, and ultimately the US will have to refill those reserves, potentially at higher prices.
Brian Deese, director of the National Economic Council, credited previous releases from the reserve as “one of the most significant drivers of blunting oil price increases over the last set of three or four months”.
Biden has presided over historically large releases from the SPR and the US is nearing levels it may be unable to go beyond without violating international agreements.
Efforts to pass legislation known as Nopec, which has long been considered by US lawmakers but never passed, are also gaining steam. This would allow the US justice department to sue members of the Opec+ cartel for anti-competitive behavior.
US Senate majority leader Chuck Schumer said the administration was looking at Nopec legislation and other bills “to best deal with this appalling and cynical action”, referring to the Opec+ cut.
However, penalizing oil-producing countries like Saudi Arabia could also be counter-productive, resulting in a further disruption of supply to Europe at a time when western consumers need more oil not less.
Helima Croft, a former CIA analyst and head of commodities research at RBC Capital Markets, said the EU embargo on imports of Russian crude that comes into full force on December 5 will require Middle Eastern oil producers to increase supply to the bloc to fill the shortfall .
“When you want to think about the White House perspective, it might feel good at the moment to talk about Nopec and talk about reducing Opec power, but you are going to need potentially every molecule come December,” she said.
In August the US energy department told US refiners to build domestic inventories rather than exporting more fuel, increasing suspicion that the Biden administration could seek to limit or block exports of refined products — particularly petrol and diesel — to bring down US pump prices.
However, Europe’s energy crisis would probably be worsened by such a move, as the continent imports significant quantities of fuel from the US and is soon to halt all seaborne Russian oil imports.
The US is also engaged in various diplomatic efforts that could result in sanctions being eased against unfriendly oil-producing countries Venezuela and Iran. Talks on reviving the 2015 nuclear deal between six world powers and Iran have largely stalled, but the deal if completed would see significant amounts of Iranian oil return to global markets.
“Suddenly the forces are aligned in a different way,” said Jorge León, a former OPEC official now at the energy consultants Rystad. “The US has limited options to reduce prices, so maybe there’s an incentive for it to push [for an Iranian nuclear deal] as soon as possible to try to counterbalance the cut from Opec.”
Separately, the US has engaged in quiet talks with the government of Nicolás Maduro in Venezuela, which it does not officially recognize, that could allow Venezuelan oil to return to American and European markets if Caracas makes progress on human rights and democracy.
“To some extent, we are opening our relationship with Venezuela, hoping they can make up some of the difference in the world markets,” said Steven Cook, a senior fellow at the Council on Foreign Relations. “These are kind of half measures.”
The recently passed Inflation Reduction Act, which includes measures that will help the US transition away from fossil fuels, will eventually reduce US exposure to global oil prices but will not help address the current problem, analysts said.
“This is meant to be a stimulus for domestic energy needs and it’s not a short-term solution, but it is a more thoughtful way to go about it, trying to help us need oil and gas less and to produce what we have more cleanly and efficiently,” Young said.