As US motorists pay record prices at the pump, Joe Biden has pleaded with the country’s oil producers to open the taps and stem the surge.
On Saturday, average US petrol prices rose above $5 per gallon, according to AAA, a national motorists’ group. It is another marker pointing to the brewing crisis in fuel costs, which is likely to spur increasingly urgent pleas for more supply from a White House battling to quell inflationary surges across the economy.
But the calls for more oil production — a stark departure for a president who vowed to crack down on fossil fuels — have largely gone unheeded as the industry insists its drilling spree days are behind it.
“When the White House started calling around in a panic, they thought shale oil production could grow sharply in the near term — like in a matter of months or quarters,” said Bob McNally, head of consultancy Rapidan Energy.
“They were shocked to learn that that’s like asking for blood from a stone. It’s almost impossible.”
US petrol prices have soared to unprecedented levels as the war in Ukraine exacerbates an already-tight global oil market. Prices this week broke through $4.95 a gallon, according to the AAA, a motoring group. In California, motorists are paying over $6 a gallon.
For consumers, prices at the pump have become one of the most visible impacts of rampant economy-wide inflation. That has created a headache for the president, who many voters blame for the rise.
“Fair or not, it’s a problem for Biden as he is seen as the maestro of the economy even though there is truthfully not much any president can do to influence gas prices in real time,” said Sasha Mackler, executive director of the energy programme at the Bipartisan Policy Center, a Washington think-tank.
The administration has scrambled to stem the rise: it has released record volumes of crude from the country‘s strategic reserves, waived certain anti-pollution rules and leaned on producers in the Middle East to pump more. But with prices continuing to climb, the White House has urged the domestic industry to raise production, which at around 11.6mn barrels a day last month remains well below its pre-pandemic peak of almost 13mn b/d.
Jennifer Granholm, the US energy secretary, told operators recently the country was on a “war footing”. “That means you producing more right now, where and if you can,” she said.
The industry is gradually expanding output, which the US Energy Information Administration expects to hit 11.9mn b/d before the year is out. But this has not been quick enough for the administration, which wants a rapid ramp-up to douse the price rise.
Producers say they cannot flip the switch and return overnight to the “drill, baby, drill” era of rampant growth that drove the shale boom of the last decade.
One factor behind this reticence is Wall Street, which was burnt by huge losses as domestic oil companies consistently poured revenues into ever-greater growth. Today shareholders are demanding returns.
Investor demands are being heeded over those of the White House: the amount of cash generated by operators this year is set to be greater than the total earned over the past two decades, according to S&P Global Commodity Insights.
Still, the number of rigs and frac fleets in the field has climbed since the depths of the pandemic, when negative US oil prices forced operators to slam on the breaks. The growth has largely been attributed to smaller private operators, which do not face the same shareholder pressure as their larger public counterparts.
Moody’s reckons private operators will boost capital spending by 49 per cent this year, growing output by 12 per cent. By contrast, public companies will increase their capital outlay by half that rate for a meagre 3 per cent production boost.
Producers also say that soaring input costs and supply chain constraints prevent them from ramping back up overnight, even if they wanted to.
The price of frac sand, used by operators in the hydraulic fracturing process to blast open fissures in the rock, has rocketed as mines shuttered during the pandemic take time to crank back into gear. The cost of drilling rigs too has shot upwards, due to the general shortage in the market. Labour costs have also risen as many skilled workers have left the industry and are demanding premiums to return.
With American drillers ignoring his rallying cry and midterm elections looming, the president has few levers at his disposal to affect the price of fuel.
“In the near-term there are few tools,” said Mackler. “We need to take action now to ensure the US is better prepared in the future. That includes ambitious measures to increase supplies, diversify supply chains, reduce demand through electrification and decarbonise the sector.”
Data visualisation by Steven Bernard and Patrick Mathurin