November 30, 2021
Prof. ST Hsieh
Director, US-China Energy Industry Forum
Introduction: This monthly newsletter is intended to be a monthly update on US-China interactions on energy and environment sectors. This is also the fifth monthly report so we will cover US and China government actions that affect energy supply and demand. We believe that accurate, quantitative, updated data is key for decision making.
Energy security is a national security issue, but it is also a geopolitical issue. Balance of supply and demand dominates the price and vice versa. At present, the biggest news item is Biden’s effort to control the US inflation with a focus on lowering the US gasoline price, which reached historical high for months.
The price of gasoline in the USA advanced 49.6% in the 12 months ended October compared to the 42.1% annual increase in September, according to the most recent inflation data published November 10, 2021 by the U.S. Labor Department’s Bureau of Labor Statistics (BLS).
Furthermore, Inflation over the past 12 months raced the quickest since 1990, according to government data released Wednesday, Nov 10, as U.S. consumers spent more in October for a broad range of products.
Most noticeable, energy prices logged sharp gains for the month and from a year ago. American also paid more for shelter and vehicles — both new and used. Food prices increased the same in October as in September, but they surged stronger from a year earlier.
In the headline monthly figure, U.S. consumer prices jumped 0.9% in October after gaining 0.4% in September, the Labor Department said in its monthly report on the Consumer Price Index (CPI). The CPI is a broad measure of what Americans pay for everyday items ranging from eggs to electricity.
The monthly gain matches the increase in June, which registered as the largest 1-month pick up since the 1% increase in June 2008.
“The monthly all items seasonally adjusted increase was broad-based, with increases in the indexes for energy, shelter, food, used cars and trucks, and new vehicles among the larger contributors,” the Labor Department’s monthly report said.
- Impact on Biden’s Presidency
Biden’s popularity has been tanking since he was inaugurated on Jan. 20, 2021. For example: Newsweek Reports: Joe Biden’s Approval Rating Remains Stubbornly Low Going into Thanksgiving BY DARRAGH ROCHE ON 11/25/21 A number of polls conducted in the days before the annual holiday have seen a poor showing for the president, who’s been in office just 10 months, amid record levels of inflation.
Publisher FiveThirtyEight tracks the president’s approval based on analysis of a wide range of polls and its own system of pollster ratings.
It found that Biden’s approval rating stood at 42.9 percent as of November 24, while disapproval of the president was 51.8 percent. That figure takes into account individual polls conducted this week.
A Rasmussen Reports/Pulse Opinion Research poll conducted from November 22 to 23 found Biden’s approval at just 41 percent and disapproval at 58 percent.
- Biden’s USA
There are many factors that contribute to Biden’s very low approval rating in the USA. Even though Biden has managed to pass massive budgets to revamp infrastructure in the US, but the real results or impacts will only be felt by the pubic after Biden leaves office.
Unfortunately, many factors are out of Biden’s control, and some are not his fault. For example, variable weather conditions are natural phenomenon. However, there were cases that Biden and his team simply failed, i.e., the disastrous withdraw from Kabul in August. Biden promised the voters last year that he would lead the US back to be the global leader in the international arena. However, his goals are too broad without any specific approach: his team simply is not well prepared for execution.
For example, Biden inherited many harsh trade tactics against China but after 11 months in the office, Biden simply does not have a China-strategy yet. As such, US-China relation remains tense and seems un-tractable. So far, Biden managed to have one video summit with Xi. There are not many interactions between high-level officials. Due to US domestic politics, there is no US Ambassador in Beijing yet. As such, the Phase-One Trade Agreement signed by Trump and Xi will expire on December 31, 2021, less than on month away, there is no clear pathway forward yet. This Agreement will NOT accomplish its goal of balancing trade deficits, in fact it is inflationary which hurts the US consumers more than the Chinese.
- Global COVID-19 Pandemic Crisis
US management of COVID-19 pandemic under Trump was a disgrace. Biden had an easy case on hand and managed the pandemic successfully initially. Biden’s strategy is based on vaccination all the US public with government mandates. Unfortunately, Biden’s invoke of federal authority created major pushback from states and grassroots. Many cities also reject the mandate for public service teams such as police and fire firefighters et al.
The latest US news is:
A pair of rulings by separate federal judges Tuesday (November 30, 2021) temporarily halted parts of the Biden administration’s mandatory COVID-19 vaccine policy for certain workers.
One ruling, issued by a Louisiana-based federal judge, effectively blocked a vaccine mandate for health workers across the country at hospitals that receive federal funding.
WASHINGTON — Federal workers will not be punished for failing to comply with President Joe Biden’s vaccination mandate until next year, the White House announced on November29, 2021.
The deadline for federal workers to get vaccinated or face suspension or firing was Nov. 22. The White House said 96.5 percent of the 3.5 million-employee federal workforce, the country’s largest, has already complied.
A. Biden deserves credit for taming the COVID-19 threat in the USA. But his success is limited because US population will NEVER be fully vaccinated. Thus, US is always exposed.
B. Biden focused on the USA and did not address the global pandemic threat effectively. US has no effective defense against variants.
C. Biden administration is less effective in vaccine R&D than Trump administration.
D. Biden’s mandate is not popular and further dividing the US society. It weakens Biden’s support in the US.
- Global COVID-19 Pandemic Crisis becomes a major crisis for Biden’s Presidency.
Certainly, the discovery of Omicron variants proves that COVID-19 Pandemic is far from over, but Biden is staring down the 2022 mid-term election defeat which is less than 11 months away. If the trend of his popularity continues, democratic is destined to lose the majority of both the House and the Senate. That means Biden will be effectively a lame duck president for the next two years (2023-2024). In fact, mid-term election pressure will mount in the spring of 2022 because candidates will campaign almost full time and much less attention will be bestowed on Biden’s agenda. It all means that Biden must make immediate policy adjustment for recovering his popularity.
So, Biden has taken some actions with the aim to lower the domestic gasoline price this month with hope that he can appease the US public’s angry over inflation. It is obvious that gasoline price is a major factor contributing to inflation, but it is not the other way around. Further, gasoline price is only a major factor in the USA and not necessarily a global issue. For example, many northern Europe nations are very concerned about winter heating cost.
- Biden’s Specific Actions in November 2021.
A. On November 17, 2021, Biden calls for investigation into gasoline price hikes
President Joe Biden called on the US competition authority to look “immediately” into the “possibly illegal” behavior of oil companies whose gasoline prices are rising “as their costs fall”.
The White House in a letter called on Federal Trade Commission (FTC) Chairman Lina Khan to “focus on the increasingly obvious signs of harmful consumer behavior by oil and gas companies. gas”.
“The FTC has the authority to look into whether there is any illegal behavior that is costing families’ budgets at the pump. I believe you should get on with it right away,” writes Joe Biden.
When asked, the FTC declined to comment on its investigations, but spokesman Peter Kaplan told AFP: “The FTC is concerned about this issue, and we are looking into it.”
Biden’s call for investigation angered the oil and gas industry, which mostly follow the free-market system and reject any government interference without any concrete evidence. Later, Biden’s White House has had to back down the charge. Essentially Biden’s politic show backfired: gasoline price will stay high.
B. Then on August 11, 2021, Aug 11 (Reuters) – U.S. President Joe Biden’s administration on Wednesday urged OPEC and its allies to boost oil output to tackle rising gasoline prices that they see as a threat to the global economic recovery.
The request reflects the White House’s willingness to engage major world oil producers for more supply to help industry and consumers, even as it seeks the mantle of global leadership in the fight against climate change and discourages drilling at home.
STH Comments: We did not pay much attention to Biden’s call to OPEC+ Because it was obvious that nothing will happen. First, US oil gas industry was angry at Biden because Biden administration is increasing environmental regulations that depressed US oil/gas output. It would make better sense that Biden encourages some US production increase. This a basic Biden contradiction of balancing policy priorities. “It’s pretty simple: if the President is suddenly worried about rising gas prices, he needs to stop killing our own energy production here on American soil,” said Republican Senator John Cornyn of Texas, the top U.S. oil producing state.
Secondly, Trump was able to call MBS and Putin personally then structured a production deal that stabilized the oil market. But Biden with his stiff political agenda on human rights etc., he refused to call MBS at all and met with Putin once because Biden is convinced that MBS and Putin are killers! So, there is no way that OPEC+ would respond to Biden’s call for increasing production and lower the global oil price affecting OPEC+’s profit.
C. OPEC+ refused to respond to Biden’s call for increasing productions, then Biden played card of releasing of SPR.
In a previous newsletter, we covered the impact of global oil price of China’s first public release of SPR: the conclusion was simple and easy. Releasing a finite amount of SPR will not cause oil price crashing and the impact lasts only a very short time.
On November 23, 2021, the White House announced that Today, the President is announcing that the Department of Energy will make available releases of 50 million barrels of oil from the Strategic Petroleum Reserve to lower prices for Americans and address the mismatch between demand exiting the pandemic and supply. More importantly, as a result of President Biden’s leadership and our diplomatic efforts, this release will be taken in parallel with other major energy consuming nations including China, India, Japan, Republic of Korea and the United Kingdom.
This is an unprecedent move and we will call it the Biden+ (in contrast to OPEC+.) However, none-of the industry experts think the strategy will work at all. The global oil price went up right after Biden’s announcement.
Global commodity price is fundamentally determined by the balance of supply and demand. OPEC+ as a cartel controls a major part of the supply side of the equation but it is against the free market system. OPEC+ decisions on oil output are a hit and miss. Specifically, outside OPEC+, there are other major producers such as the USA, Canada, and China. Further any market needs stability and hates surprises except speculators.
D. Biden+ coordinated release of SPR will not be effective also because the nature of SPR. First, SPR is not designed for manipulating oil prices rather it is an emergency oil reserve for dealing with supply interruptions. Korea and Japan have laws prohibiting the release of their SPR for non-emergency cases. Of course, Biden has succeeded to overrule Japanese law and Korean law in this case.
Second, releasing SPR is a long and tedious process. Typically, US DOE must issue public bids, allow bidders to join, even after the bids are settled detailed negotiations will take some time to finalize the contract for such details as specific cost per bbl, delivery time and location etc. Once all the paperwork is done the actual release of SPR fuel to the destination takes a finite amount of time, usually weeks. So, the US released SPR will reach refinery or destination most likely will be next January. It will not have much impact on the gasoline price in the USA right now. Thus, coordinated release of SPR from five nations will not be a synchronized action thus the impact will be limited to a single release at a time or no cumulative impact.
Third, the amount of SPR projected to be released is still very limited. For example, the US is determined to release 50 million bbl. In contrast. China imports almost 10 million bbl per day! US release will be a “drop in the bucket” for China literary.
Fourth, most important issue is the chemical property of the released SPR. The US intends to release a sweet-sour grade crude accumulated many years ago. Unfortunately, US refinery can not use this grade effectively anymore. The worst-case scenarios are released crude will be put into storage in the USA and eventually exported to China, may be. It means that Biden’s policy of releasing US SPR will not reach US refinery thus no-impact on US gasoline price at all.
E. We can only speculate how Biden and his team improvise such an infective policy, one reason is that Biden and Democratic party are high on policy but short on reality. In this case, obviously his team did not consult or did not care about US industry.
The other reason is that Biden team did NOT understand or realize that “US Inflation” was caused by US federal monetary policy, frankly, flooded the economy with “paper money” that effectively caused significant devaluation of US currency. Even if Biden’s plot of lowering US gasoline price had any impact, it would not resolve the “Global Inflation” pressure. US economy is now only a part of the global economy not the other way around anymore.
- COVID-19 Pandemic is NOT going away
While Biden was trying hard to lower the US gasoline price in order to save his presidency, he failed to realize pandemic is a global issue. Attacking OPEC+ will not ease global inflation, because pandemic has ravaged the global economy. It will take a global team response to the pandemic for ensuring a stable recovery.
On November 26th, Oil dropped sharply, with the U.S. benchmark plunging 13%, after the discovery of the Omicron variant in southern Africa, with several countries moving to restrict flights from the region. In the meantime, the US major stock index sunk almost 2.5%. Suddenly, Biden faced a new challenge of stagnation: contraction of economy along with inflation. It is getting more difficult for Biden day by day…
- However, Biden+ may have significant long-term impact on global oil market.
OPEC+ may perceive that Biden+ as a sustained challenge for its global pricing power. Because Biden+ does represent all major oil consumer nations as a unified group for the very first time in history. OPEC+ may decide soon to send a signal that Biden+ must be dissolved. It could be a quick and significant production limit drives up global oil price to the limit. The risk is that it may further global recession along with the pandemic threat such that OPEC+ economy recovery: there is no winner.
It is difficult to project the future of Biden+, after all, global pandemic is the driving force for this crisis. Then, Biden’s presidency is limited to the maximum of four years till 2024. Except the US, which is a net energy exporter, other members of OPEC+ including China, Korea, Japan, India, and England depend on oil import. It is impossible for these nations to fully break up with OPEC+ because US is not able to export sufficient native oil for these nations. In the sense that no major nation can depend on the US for crude oil supplies.
- US-China LNG trade seems moving forward nicely with a long-term contract between SINOPEC and Chenier. Long-term contracts provide supply-price stability, especially under a challenged global society such as now. The COVID-19 pandemic is a very dark cloud and it must be managed by a responsible global team.