US signals it still depends on cheap oil from abroad

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After a year of head-spinning volatility in American petro-diplomacy, a reversion to normal is under way. The US wants cheap oil again.

“I had a productive call with Saudi Energy Minister Abdulaziz bin Salman al-Saud today,” tweeted US energy secretary Jennifer Granholm last week. “We reaffirmed the importance of international co-operation to ensure affordable and reliable sources of energy for consumers.”

That was just hours before a meeting of the Opec+ oil producers cartel. Abdulaziz said the two ministers did not talk crude, but Granholm’s subtext was plain to anyone that has watched decades of Saudi-US relations. It read: keep a lid on crude prices.

It marks an abrupt shift from the Donald Trump era. Twelve months ago, US producers begged Trump to help stop an oil crash, so he piled pressure on Russia and Saudi Arabia to slash supply and prop up the market.

Now the Biden administration has reverted to the mean, evidently fretting that a 60 per cent rally in crude prices since November — underpinned by those production cuts Trump helped orchestrate — has gone too far.

Whatever Joe Biden said about a “transition from the oil industry” and decarbonising the US economy, oil prices still matter to a superpower with geopolitical responsibilities.

“The United States has core interests in the stability of the global economy and that means the US administration — no matter how they might want to avoid thinking about oil — has to worry about oil prices being too high or being too low,” said Amy Myers Jaffe, a professor at Tufts University’s Fletcher School of Law and Diplomacy.

If prices rise too quickly, “it could be devastating for low income importing countries”, she added. It also matters domestically — especially among poorer Americans, who spend a higher proportion of their income on fuel.

The crude market’s strength has fed into a sharp rise in US petrol prices, a rally helped along by the easing of coronavirus lockdowns and fast spread of vaccinations across the US.

Average gasoline prices have reached almost $3 a gallon. That’s still a bargain compared with Europe, but it is a rise of about 45 per cent in the past 12 months, leaving forecourt US prices just a few cents shy of seven-year highs.

Hence the Biden administration’s eagerness to talk to the Saudi energy minister about “affordable energy” just ahead of a crucial Opec meeting to decide global oil supply levels.

“It says much about the Biden administration’s political sensitivity to rising pump prices,” said Bob McNally, head of Rapidan Energy Group and a former adviser to the George W Bush White House.

And yet the timing was awkward. Granholm’s tweet arrived just hours after Biden unveiled a $2tn plan to green the country’s infrastructure and electrify its cars, buses and trains.

The US transport sector is the biggest contributor to the country’s greenhouse gas emissions, and gasoline is by far its most consumed petroleum product.

Biden wants to raise fuel-economy standards to curb this pollution, install electric-vehicle charging points across the country, and turn the US into an EV manufacturing powerhouse.

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More expensive petrol could help these ambitions. Cheap gasoline is no incentive to buy an EV. And yet the inconvenient truth is that the Biden administration’s first real foreign energy intervention was to talk about “affordable” oil with the world’s biggest crude exporter and swing supplier.

That was revealing in another way, too. If nothing else, Granholm’s Riyadh call shows that the fleeting era of American “energy dominance”, to use Trump’s term, is definitely over.

That goal depended on soaring US energy production, rising oil and gas exports.

But all that was a casualty of last year’s oil price collapse, which sent years of expansion from the American shale oil business into reverse. US crude output, which touched highs near 13m barrels a day 12 months ago, is just over 11m now.

American energy autonomy — the dream of every president since the Opec-induced oil price spikes of the 1970s — remains distant. Net oil imports are rising again and even famously bullish shale producers say the US will never recover its pre-pandemic production highs.

Americans may one day fixate on the cost of EV-charging and lithium batteries, not gasoline. Until then, US drivers and the presidents they elect will remain vulnerable to the whims of foreign oil autocracies and their cartels — and Biden knows it.

derek.brower@ft.com





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