OPEC’s Surprise Output Hike Offers Biden Break on Gas Prices

(Bloomberg) -- US President Joe Biden may have just received a timely election boost from an unlikely source.

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OPEC+’s decision on Sunday to put more oil into the global market potentially keeps a lid on gasoline prices through the end of the year, which could help cool voters’ wrath over costs at the pump.

Even though US presidents have little control over oil markets in the short term, their fortunes have often been tied to prices at the pump, with voters not hesitant to punish politicians for expensive fill-ups. And with signs posted prominently at corner stations, the cost of fuel remains one of the most visible inflation indicators.

“The Biden administration has clearly gotten a big dollop of relief here,” said Bob McNally, president of consultant Rapidan Energy Group and a former White House official.

Oil prices have dropped almost 5% since OPEC and its allies agreed on Sunday to gradually unwind some production cuts starting in October — earlier than expected — a decision some analysts said may weigh on crude in the months ahead. The move also may boost oil flows into the global market just weeks ahead of the US election in November, potentially lowering the cost of gasoline as voters head to the polls. Crude oil is the biggest factor in what consumers pay for gasoline in the US, accounting for more than half of the retail price.

In a May Bloomberg News/Morning Consult monthly tracking poll in the seven key swing states that will decide the 2024 election, 30% of voters said gas prices were the most important economic factor to them. Voters in those states trusted Trump more than Biden to handle the issue by a margin of 49% to 32%.

Moody’s Analytics Chief Economist Mark Zandi said if gasoline falls toward $3 a gallon by Election Day, Biden should win reelection. But if prices rise to more than $4, Donald Trump is more likely to prevail. Prices averaged about $3.52 a gallon on Monday.

“The outcome of the presidential election isn’t likely to hinge on abortion, immigration or even climate change,” Zandi said in a May 20 online opinion piece. “It is likely to depend, instead, on the price of gasoline in the leadup to the vote.”

Soaring fuel costs emerged as a political albatross for Biden early in the summer of 2022, when pump prices peaked at more than $5 a gallon, giving Republicans the chance to bash his energy and climate policies before the midterm elections.

Still, Biden has taken unique ownership over the issue, saying later that year that his decision to unleash a historic amount of crude from the nation’s emergency supply provided motorists with relief at the pump.

OPEC’s move “could keep gasoline out of the headlines through the summer,” said Jim Lucier, managing director at Capital Alpha Partners, a research group in Washington.

“They are opening the door for their OPEC partners to produce more, but trying to maintain enough discipline to avoid a price collapse,” Lucier said in an email. “Ironically, it would be that price collapse going into the fall that would be the ultimate vindication of Joe Biden.”

Retail gasoline prices, a key issue for swing voters, have already risen around 13% since the beginning of the year, according to the American Automobile Association. And while prices have retreated since mid-April — largely tracking a decline in crude — they typically climb during the summer as increased driving boosts demand.

Asked about OPEC’s decision on Monday, White House National Security Council spokesman John Kirby said Biden’s goal is to keep easing costs for drivers.

“Our focus is going to be on the price at the pump for consumers, and the president is confident that he’s got strategies in place to do that,” Kirby told reporters.

For Biden, the OPEC policy shift also may help negotiations on a historic defense pact with Saudi Arabia that would potentially reshape the Middle East and bolster the US’s position in the region.

The pending production boost provides “a beneficial backdrop for the US-Saudi grand bargain negotiations,” said Helima Croft, head of global commodity strategy at RBC Capital Markets LLC. “The decision to provide taper forward guidance will likely please officials in Washington who consistently maintain that a moderate oil price will help build congressional support for a deal.”

The move also may help Biden restock the Strategic Petroleum Reserve at more affordable crude prices. The administration has said it’s willing to pay as much as $79.99 a barrel to refill the stockpile. US prices are currently more than $6 a barrel below that threshold.

While OPEC’s move is good news for the president, analysts say price gains are still possible later this year. Demand growth is expected to increase and geopolitical tensions in the Middle East still hold the potential to hamper crude supplies.

“We are a long way from out of the woods,” Rapidan’s McNally said.

--With assistance from Grant Smith, Mark Niquette and Lucia Kassai.

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