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US policy options dwindle for White House to ease gasoline price pain

Highlights

DOE says 'no immediate plan' for SPR sale, export ban

Curbing high RIN prices could have biggest impact: ESAI

Crude export ban would distort WTI/Brent spread: Rapidan

After getting rebuffed by OPEC, the White House is looking at its few remaining options to ease high US gasoline prices that have pressured the Biden administration for months, including quietly asking domestic producers to ramp up output and moderating high RIN prices.

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US Energy Secretary Jennifer Granholm told the Financial Times on Oct. 6 that her department was considering an emergency release from the Strategic Petroleum Reserve and reimposing the crude export ban, with the second suggestion in particular drawing criticism from industry and analysts for its potential to significantly disrupt the US oil market and raise gasoline prices further.

The Department of Energy said in a statement Oct. 7 that Granholm had not endorsed either option and was only including them among "all the tools" open to the administration.

"DOE continues to monitor global energy market supply and will work with our agency partners to determine if and when actions are needed," the DOE said in the statement. "All tools in the toolbox are always under consideration to protect the American people, there is no immediate plan to take those actions at this time."

Policy tools

The White House is contending with US retail gasoline prices rising to their highest level since 2014, which adds political pressure to the ongoing spending votes in Congress, the UN climate talks next month and mid-term elections next year. The administration failed to persuade OPEC+ to put more crude supply on the market, with the producers deciding Oct. 4 to stick to their original plan of increasing November output by 400,000 b/d.

Analysts see a few options still available to the White House, although none is likely to immediately ease the pain at the pump.

So far, the White House has asked OPEC to put more supply on the market, conducted several small SPR swaps with Louisiana refiners hit by Hurricane Ida, directed the Federal Trade Commission to monitor the gasoline market for any illegal conduct, and directed the Transportation Department to issue emergency guidelines allowing fuel truck drivers to work longer hours.

Other policy tools used by past presidents during times of high pump prices include Jones Act waivers allowing foreign ships to move fuel between US ports, and surveying refiners to make sure they had no unnecessary outages or planned maintenance.

Still another option for the administration would be to soften its tone a bit on energy issues, said Ben Cahill, senior fellow at the Center for Strategic and International Studies.

"Rhetoric from the White House matters, maybe even more than short-term market interventions that can backfire," he said. "You can have ambitious climate policies and still recognize that we need continued oil and gas investment to meet energy security needs, not just from OPEC but also at home. That's a recalibration, but I think the market would welcome it."

Global gas crisis

One source said the White House this week had called some domestic producers to urge them to increase supply but declined to give further details.

"The problem is not really crude supply," said Sarah Emerson, managing principal of ESAI Energy. "It is higher overall oil demand due to the natural gas (and coal) tightness, but also oil prices moving up with the overall energy complex."

Emerson estimates an additional 750,000 b/d of global oil product demand this winter as a result of the natural gas supply crunch. She said there is enough crude supply and plenty of refining capacity to process it.

DOE is already set to sell 20 million barrels, or about 220,000 b/d, of SPR crude in the fourth quarter. China and India have announced their own plans to sell some of their strategic stocks.

Emerson said addressing US refiners' RIN costs could have the biggest impact on gasoline prices, either by lowering the Renewable Fuel Standard's required blending volumes or granting more waivers to small refineries.

"You could get as much as 20 cents off the gallon if they took strong RFS action," she said.

Market distortions

White House Press Secretary Jen Psaki said the administration continues to look for ways to ease the burden of high energy prices.

"We're going to continue to use every tool at our disposal, even as we're not a member of OPEC, to ensure we can keep gas prices down for the American public," she said Oct. 4.

Granholm's suggestion of revisiting the 2015 action by Congress to remove restrictions on US crude exports drew the most criticism. Allowing US producers to sell their crude on the global market transformed Gulf Coast infrastructure and markets in recent years, driving US production higher until the industry was hit by plunging demand from the pandemic and increasing investor pressure for capital discipline.

Bob McNally, president of Rapidan Energy Group and a former White House adviser during the George W. Bush administration, said reimposing crude export restrictions would not solve high domestic gasoline prices.

"If they banned crude exports, WTI prices would disconnect from and collapse relative to global crude prices such as Brent," he said. "This WTI-Brent blowout would be an early Christmas present for domestic refiners able to source landlocked US crude, but it would not help consumers who would continue to pay global, Brent-based prices for gasoline and diesel."

Goldman Sachs analysts predicted large price distortions from an end to US crude exports, likely higher US gasoline and refined product prices, a wider US trade deficit, a potentially weaker dollar and higher inflation.