Analysis by Energy Workforce President Tim Tarpley
In a surprise announcement Sunday, OPEC+, led by Saudi Arabia, announced cuts totaling more than 1.1 million barrels a day, or 1% of global production, which will go into effect next month. The move was a surprise to many industry observers.
The White House, facing months of an increasingly rocky relationship with Saudi Arabia over oil production, was given advanced warning. The Administration made it clear it did not feel the cuts were warranted.
“We don’t think that the production cuts are advisable at this moment, given the market uncertainty. And we made that clear,” said John F. Kirby, a spokesman for the National Security Council. “But we also don’t have a seat at that table.”
Oil prices rose sharply on Monday to about $84.50 a barrel in response to the news and have since stayed steady. This move opens up a significant vulnerability for President Biden’s efforts to cool inflation and lower energy costs. Oil prices had been on a downward trend in recent months, and this was certainly helping the President politically. If prices continue to rise, we can expect increased political pressure on the President and his allies in Congress to support domestic production.
Last week, the House of Representatives passed H.R.1, a comprehensive energy package aimed at spurring domestic energy production, with many feeling the package would lie dormant in the Senate. It still might, but a run up on oil prices will certainly put increased pressure on Senate Democratic leadership to consider elements of the package at least. As maybe one of the most important player in the Senate, Sen. Joe Manchin (D-VA), who chairs the Senate Energy and Natural Resources Committee, has made his interest in moving elements of the package forward clear. While permitting reform likely has the most legs of any of the provisions, political pressures may put some of the other provisions once again in play.
The Biden Administration is also struggling to figure out when and how to fully refill the Strategic Petroleum Reserve (SPR). The Administration used emergency sales of oil from the SPR last year to help shield the country from rising oil prices and said it would start refilling the 180 million barrels when prices fell to the lower $70s. Yet even as oil fell into the $60s recently, the Administration refused to take action to refill the reserve. Now that prices are going up again, critics are lashing out at the Administration and the appearance that they were using the SPR for political purposes.
As long as oil prices continue to rise and the war in Ukraine continues, we can expect energy issues to remain at the top of the political debate well into the next election cycle.
Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.