Rising gas prices will torpedo Bidenomics

More bad news for President Biden: Prices at the pump are heading higher again — and this time he cannot look to the Strategic Petroleum Reserve to bail him out.

Biden’s hopes of a second term are threatened not only by his unpopularity and increasing allegations of corruption; it is also in peril thanks to rising gasoline prices. Voters will see higher prices at the pump as the clearest signal yet that Bidenomics does not work for them, and they will hold the president responsible.

Oil inventories are dropping in the U.S. and worldwide, while demand is rising, causing the U.S. benchmark oil price to jump 15 percent in the past month. In response, gasoline futures just rose to $2.90 per gallon, the highest since July 2022; the price at the pump jumped 4 cents a gallon last week. 

The U.S. Energy Information Administration just recently raised its forecast for Brent spot prices in 2024 by 12 percent. Though the post-COVID rebound in the world’s economies has been sluggish, oil consumption is nonetheless increasing. At the same time, OPEC+, and especially Saudi Arabia and Russia, has been slashing output to drive prices higher. Thanks to Biden’s ongoing war on fossil fuels, U.S. production, which historically might have offset those cuts, has not recovered to its pre-pandemic level.  

Just last week, the Biden administration proposed to raise the royalties that oil companies pay on production from public lands by one-third — from 12.5 percent to 16.67 percent. The White House also announced new rules that would substantially increase the cost of leasing acreage and raise drilling insurance costs more than tenfold. The Interior Department estimated that the cost of those changes and other new rules would total $1.8 billion over the next several years.   

The Biden White House is proud to squash domestic oil and gas development. The New York Times reported that the Interior Department “characterize(s) the changes as part of a broader shift at the federal agency as it seeks to address climate change by expanding renewable energy on public land and in federal waters while making it more expensive for private companies to drill on public lands.”

Oil producers in the U.S. are responding to hostility from the Biden White House by reducing drilling and spending money elsewhere. The number of drilling rigs operating in the U.S. is down 12 percent from last year, at 669. The rig count overseas, meanwhile, is up 17 percent. In July 2019, before the pandemic, there were 955 rigs hard at work developing U.S. oil and gas supplies.

Unhappily for Biden, paying more at the pump hurts all Americans. Biden’s approval ratings go down when gas prices go up and vice versa — predictably.

Gas prices peaked in June 2022, topping $5 per gallon for the very first time; in short order, Biden’s approval ratings hit their lowest-ever level, at -20. When gasoline prices receded, Biden’s approval recovered somewhat. Today, he stands at minus 11, according to the RealClearPolitics average of polls.

President Biden was quick to blame “[Russian President Vladimir] Putin’s war” for spiking oil and gas prices in 2022, but voters knew better. Biden took aim at fossil fuels early in his presidency, canceling the Keystone Pipeline, halting lease sales of promising acreage, delaying drilling permits and increasing the costs of developing new oil reserves.

As a result, U.S. oil production, which had steadily increased under then-President Trump to 13.1 million barrels per day in February 2020, declined sharply. The fall-off was exacerbated by lower oil prices caused by the pandemic, when the world’s economies ground to a halt and demand for commodities swooned.

But the roadblocks thrown up by the Biden White House prohibited exploration activity from rebounding when higher economic activity, the war in Ukraine and the downturn in U.S. production caused oil prices to soar again in 2021.

In a panic over plummeting approval ratings, Biden drained oil stored in the Strategic Petroleum Reserve (SPR) to stem rising gasoline prices. Earlier this month the reserve held 346.8 million barrels of oil, the lowest level since August 1983 and down by 291.3 million — 45 percent — since Biden took office in January 2021. The administration would not dare tap the SPR again.

Today, U.S. oil production is probably 2 to 3 million barrels short of where it would be under a more encouraging White House. That means we have ceded control of worldwide prices, once again, to OPEC. In particular, we have handed the reins back to Saudi Arabia, a country whose leader Biden has gratuitously insulted and alienated, and Russia, with whom we are engaged in a proxy war. That was not smart.  

The Ivy Tower theorists of the Biden White House foolishly imagine that we can switch to renewable fuels in a few short years, and is pushing that supposedly green agenda in dictating what kinds of cars, stoves, hot water heaters and lightbulbs Americans can buy. Our energy wizards are directing hundreds of billions of dollars into wind towers and solar panels that communities are increasingly rejecting and that electric grids are not able to absorb. Foregoing investment in reliable fossil fuels, which still provide 79 percent of our energy and which are essential during this transition period, is reckless and risky.  

Globally, oil also remains key. Despite massive investments in renewables, the world continues to derive 80 percent of its energy from fossil fuels.

Warren Buffett just plowed $122 million into the shares of U.S.- based Occidental Petroleum. That’s on top of Buffett’s recent purchase of a Maryland-based LNG operations. Why would the Sage of Omaha make such unfashionable investments? Because he knows something the White House doesn’t know: Fossil fuels are here to stay and Biden’s foolish war on domestic energy just drives prices (and values) higher.

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. Follow her on Twitter @lizpeek.