Prof. ST Hsieh
Director, US-China Energy Industry Forum
February 24, 2022
War is a tragedy, innocent civilians along with soldiers will be wasted in Ukraine. No body know how long the war will last, but it is obvious that Ukraine will never be the same. Along the way, many nations and people will suffer too. In the USA, Biden Administration has already implemented serve sanctions against Putin. However, Biden is seriously concerned about additional US inflation induced by his sanctions. Because US inflation is already “bad” due to the COVID-19 pandemic, now sanctions against Putin are raising global commodity prices, of particular concern for Biden is US domestic gasoline price.
The following news reports detailed current trend. Some highlights are:
- Oil prices jumped above $100/barrel for the first time since 2014, and European gas prices surged following the onset of the attack. Brent crude, the global oil benchmark, slid back below $100 after President Biden signaled he didn’t intend to sanction Russian oil and gas.
- Biden also wants Big Oil and Saudi Arabia to ramp up production and keep prices in check. “On the one hand, they are asking us to produce more oil and gas,” said Mike Sommers, president and CEO of the American Petroleum Institute.
“On the other hand, there are at least five policy areas where they have said the exact opposite, including just this weekend — announcing a new moratorium for on- and off-shore leases.”
- The bottom line: A potential nuclear agreement with Iran, which has an estimated 85 million barrels stored at sea, may do more to lower the price of oil than any increased productions from the Saudis or U.S. companies.
From energy prices to the cost of wheat, Russia’s invasion of Ukraine had almost immediate ripple effects. Axios’ Laurin-Whitney Gottbrath rounds them up.
The big picture: Higher energy prices will impact everything from the cost of goods to prices at the gas pumps.
- A price shock for natural gas in Europe is a particular concern. Russia is by far the largest natural gas supplier to Europe.
- What to watch: Brent crude, the global oil benchmark, slid back below $100 after President Biden signaled he didn’t intend to sanction Russian oil and gas. For now, the lifeblood of the Russian economy continues to flow largely unencumbered. Biden also wants Big Oil and Saudi Arabia to ramp up production and keep prices in check, Axios’ Hans Nichols reports.
Biden turns to Big Oil, Saudi Arabia as energy costs soar
As President Biden confronts soaring energy costs, he’s looking for help from two entities he’s criticized for years: Big Oil and Saudi Arabia.
Why it matters: The president of the United States is placing part of his political fate into the hands of people who question his long-term intentions and have little incentive to help him, straining his options to contain energy prices. Another challenging option: a nuclear deal with oil-rich Iran.
- The White House is bracing for Russia’s invasion of Ukraine to send gasoline prices soaring, adding more pressure to the current 7.5% inflation rate.
- While Biden isn’t adopting the old Republican “drill, baby, drill” mantra, he’s sending signals to oil companies that he wants their help to prevent prices at the pump from surging.
- He’s also leaning on the Kingdom of Saudi Arabia — which he called a “pariah” during the 2020 presidential campaign — to increase its production.
- “We’re working closely with major energy producers,” Daleep Singh, the deputy national security adviser for international economics, told reporters on Tuesday. “We can work with energy companies to surge their capacity to supply energy to the market, particularly as prices rise.”
The big picture: Throughout the campaign and his presidency, Biden has put the oil and gas industry on notice he expects it to cut carbon emissions.
- On Day One, he issued an executive order to rescind permits for the Keystone pipeline and pledged to rejoin the Paris climate accords.
- He’s targeted the industry with higher taxes and, in November, blamed it for surging prices at the pump, suggesting providers were making “significant profits off higher energy prices.”
- He instructed the Federal Trade Commission to investigate potential illegal activity.
- In December, though, the administration started to shift its rhetoric. Energy Secretary Jennifer Granholm called on U.S. oil producers to get their “rig counts up.”
Today, the oil industry says the administration is sending mixed messages.
- “On the one hand, they are asking us to produce more oil and gas,” said Mike Sommers, president and CEO of the American Petroleum Institute.
- “On the other hand, there are at least five policy areas where they have said the exact opposite, including just this weekend — announcing a new moratorium for on- and off-shore leases.”
- In September, national security adviser Jake Sullivan traveled to Saudi Arabia to have additional conversations and repeat the request to pump more oil.
- But OPEC+ countries have been ignoring those calls.
- Last week, Brett McGurk, the National Security Council’s Middle East coordinator, and the State Department’s energy envoy, Amos Hochstein, were in Riyadh for further discussion.
- The Saudis haven’t indicated they plan to increase their production.
By the numbers: With war looming, the price of a barrel of oil has risen from $77 per barrel in early January to nearly $100.
- The national average price of gas per gallon is $3.54, up from $2.64 a year ago, according to AAA.
- The United States is still not back to pre-pandemic oil production levels; it pumped about 11.97 million barrels a day last year, down from 12.3 million in 2019.
The bottom line: A potential nuclear agreement with Iran, which has an estimated 85 million barrels stored at sea, may do more to lower the price of oil than any increased productions from the Saudis or U.S. companies.
- “There’s not a drop of spare production capacity outside of OPEC+,” said Robert McNally, president of Rapidan Energy Group. “It’s wishful thinking.”
- “The only real option that the Biden administration has to increase oil supply in the near term is signing an Iran deal and then convincing Saudi Arabia to produce more.”
During his remarks on Thursday afternoon, the president announced additional sanctions levied on two major Russian banks and imposed export controls to curtail high-tech Russian imports.
…but not for energy: He added the sanctions package the United States has placed on Russia was “specifically designed to allow energy payments to continue.”
As of 2019, fossil fuels accounted for more than half of U.S. imports from Russia.
And, Biden had a harsh warning for U.S. energy companies: “American oil and gas companies should not exploit this moment to hike their prices to raise profits,” he said.
Biden announces new sanctions on Russian banks and country’s elites as he decries Russia’s ‘brutal assault’ on people of Ukraine
President Biden outlined the sanctions against Russia after it launched a full-scale attack against Ukraine. “Putin is the aggressor. Putin chose this war and now he and his country will bear the consequences,” Biden said in remarks from the White House.
American Petroleum Institute CEO Mike Sommers insisted on Thursday that US oil companies would not seek to capitalize on Russia’s invasion of Ukraine.
“Our companies would never take advantage of this kind of situation,” Sommers, who leads the most powerful US energy trade group, told CNN in a phone interview.
Earlier on Thursday, Biden delivered a warning to the oil industry amid soaring prices.
“American oil and gas companies should not — should not exploit this moment to hike their prices to raise profits,” Biden said in prepared remarks.
Sommers argued that US oil companies want to do what’s best for consumers around the world.
“My member companies are patriots,” he said. “This is not a time to target one particular industry that has a proven record.”
Speaking after US oil prices hit $100 a barrel for the first time since 2014, Biden said the United States is “actively working” with nations around the world to potentially tap into emergency oil reserves in a coordinated fashion.
“And the United States will release additional barrels of oil as conditions warrant,” Biden said.
The API pledged to cooperate with a potential release from the Strategic Petroleum Reserve, America’s emergency stockpile of oil.
“This is exactly what the SPR is designed to do — to cushion these kinds of situations where there is a supply-demand imbalance as a consequence of national security issues,” Sommers said.
Pointing to rising rig counts and projections for higher US oil production, Sommers indicated the domestic oil industry stands ready to add badly needed supply.
“Our producers are responding to the price environment and will continue to,” he said. “We’re focused on making sure that the European continent is well supplied from an energy perspective.”
Even though oil prices have spiked well above pre-Covid levels and profits are surging, US oil output has not yet fully recovered.
Sommers did not say whether API members would cut ties with Russia following the invasion of Ukraine, though he did sharply criticize Moscow.
“We of course condemn what is going on in Russia and are in full support of Ukraine during this terrible time for that country,” he said. “We’re entering into one of the scariest foreign policy times since the end of World War II.”