When OPEC+ decided to cut oil production, President Biden reacted with indifference. This contrasted with his previous statement of "consequences" for Saudi Arabia when it reduced output in October. The administration's tepid response suggests they believe the cut will have a smaller impact on the slowing U.S. and global economy than last year's cuts.
U.S. Economy Enters More Predictable Phase
Officials claim the U.S. and global economy are now less volatile, with gasoline prices stabilizing, U.S. oil production reaching record highs, and the job market and inflation cooling down. However, the White House recently slashed its GDP growth estimates for 2023, signaling possible recession concerns.
OPEC Move Complicates Inflation and Gas Prices
Despite a slowing economy, OPEC's decision could still hinder Biden's efforts to control inflation and suppress gasoline prices. The recent U.S. banking crisis has added uncertainty to global and U.S. forecasts. Goldman Sachs analysts increased their year-end price target for Brent crude, which could push gasoline prices above the critical $4 level, further driving inflation.
Fewer Options for Tackling High Gas Prices
Russia's invasion of Ukraine interrupted Biden's plans to shift the U.S. away from fossil fuels. Record gasoline prices last year led to the administration urging the oil industry to increase production. Although pump prices are lower than last year, Biden needs more tools to combat high prices this summer, especially after depleting the nation's strategic reserves.
Potential Price Squeeze Ahead of Summer Driving Season
U.S. gasoline inventories, which can indicate future market conditions, are entering spring at lower levels than last year. The Biden administration considered imposing minimum fuel storage requirements to limit exports. Current gasoline inventories are about 7% lower than last year, raising price concerns ahead of the busy summer driving season.