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If President Joe Biden came out forcefully on the side of increasing US oil production, the price of a barrel could fall quickly, experts told The Post — even if it takes a while to bring that new energy online.
Just look at what happened Wednesday in the wake of the United Arab Emirates and Iraq saying they’d up production by an estimated 800,000 barrels a day: The global price of oil dropped by $22 a barrel within minutes.
If Biden signaled full-throated support for US drillers to get to work — and perhaps allowed the re-starting of the Keystone XL Pipeline from Canada — global oil prices could similarly fall sharply, the industry experts told The Post.
“Biden could go to the oil and gas industry and say, ‘OK, I’ve said we’re going to get off oil and gas and that you guys are yesterday’s industry, but I’m going to drop that,,” surmised Myron Ebell, the director of the Competitive Enterprise Institute’s Center for Energy and Environment. “Part of the run up in oil prices is the psychology of it,” he said.
Biden could say to the industry: “‘I need your help,’” Ebell said. But so far, it’s been crickets, according to oil executives who’ve been willing to speak out.
Just last week, CEO Rick Muncrief of Devon Energy — a large driller worth around $40 billion — told Bloomberg that he’d be happy to talk to US officials about upping production. But there’s been no call. “I’m a little mystified that there hasn’t been some dialog,” he said. “It’s not been that long ago that we were asked to drill less, not more,” he said. “They need to be talking about what is it they would really like U.S. producers to do.”
That’s the kind of inaction that’s keeping prices high — up more than 40% since Russia invaded Ukraine and the war has worsened — and up nearly 90% over the past year when looking at the global Brent crude benchmark, which has risen as high as $123 a barrel in recent days when compared to its level of around $63 a year ago.
Biden is facing renewed criticism over his restrictive energy policies – with experts noting the administration’s frosty relationship with US producers has added to the problem.
“There’s an invisible hand in the oil market – If there’s a perception that, ‘Hey, if this guy is going to free up this pipeline, he might start freeing up some leases and stuff,’” then that could help push prices down, said Phil Flynn, senior market analyst at Price Futures Group.
Get the latest updates in the Russia-Ukraine conflict with The Post’s live coverage.
“It would have an immediate psychological impact on price,” Flynn said – noting a Keystone reboot announcement that would bring oil from the tar sands of Canada could knock off up to $10 from the price of oil just at the stroke of a pen, even if the pipeline were years away from production.
The president, meanwhile, blamed Vladimir Putin this week as national average gas prices hit a record $4.25 in response to the US import ban.
But US firms have less incentive to produce more oil while facing heavy regulations – meaning they’re more likely to leave the oil in the ground and drill in the future when prices are higher, says Benjamin Zycher of the American Enterprise Institute. He contends under the “Green New Deal” regulatory environment, the atmosphere in Washington is decidedly anti-oil.
“If you really believe they’re going to be imposing regulatory and other constraints on the development of fossil fuel resources and investment in fossil fuel infrastructure, then higher prices are the result down the road — and therefore are the result now,” Zycher told The Post.
The administration is reportedly in diplomatic talks with longtime foes Venezuela and Iran as it looks for alternative sources to stave off the financial crunch facing US motorists — but outreach to US firms has been limited.
Republicans and other Biden critics say his actions and proposals since taking office – such as canceling the Keystone pipeline, suspension of new federal oil and gas leases, higher drilling fees on federal land and a Democratic-led push for the Federal Reserve to implement climate change policies – have sent a clear signal to US producers.
Tom Kloza, the global head of energy analysis for OPIS, noted the Biden administration has developed an “adversarial relationship” with US producers who now face calls to increase their output.
“You’ve got diplomacy on Ukraine. You’ve got diplomacy with Iran. Now you’ve got diplomacy with Venezuela,” Kloza said. “You know, it might be advisable to have some diplomacy with oil and gas companies.”
The Biden administration may not be able to do much in the short term to affect gas prices, but it could be doing more to ease the long-term pressure on the energy markets.
Jay Hatfield, the chief investment officer of ICAP, said the president would do well to reach out to the CEOs of domestic oil producers and to personally urge them to boost output – though the benefit would be “marginal” and take months to show up for consumers.
The Biden administration recently put further restrictions on pipeline construction after the Federal Energy Regulatory Commission announced new guidelines requiring that any new projects meet climate change thresholds. The FERC ruling is part of a pattern in which the administration is making it harder for energy companies to operate more freely, according to Hatfield.
And the administration erred when it canceled the Keystone pipeline, which “effectively canceled all pipelines,” according to Hatfield. “If you cancel a major pipeline project that, that’s a hugely negative signal to the market,” he said.
The Biden administration has pushed back on criticism of its approach. In one heated recent exchange, White House Press Secretary Jen Psaki dismissed the idea that the administration could do more to boost in oil production – arguing companies had plenty of money to fund drilling and were leaving existing leases unused.
Some experts say the energy crisis goes beyond Biden’s policies. Oil prices have experienced wild fluctuations during the COVID-19 pandemic, with demand plunging during its worst days and now skyrocketing as the latest Omicron surge recedes – leaving producers unable to keep pace.
Oil prices turned negative as recently as 2020 – so companies risk spending more money on production only to see their prospective profits disappear by the time it came to market.
“It doesn’t come out overnight. Even the quickest assets, like shale assets, take six months to yield their first barrel,” said Energy Word founder Dan Dicker. “Now I’ve got to be assured that when that stuff comes to market, I’m still going to make a profit on it. Oil has this terrible ability to go up and down real fast.”
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