A "gift" for the US President?

Báo Quốc Tế•06/04/2023

Một cơ sở dự trữ dầu chiến lược của Mỹ ở Feeport, bang Texas.

Will OPEC+ cut oil production, benefiting the US as well? A US strategic oil storage facility in Feeport, Texas. (Source: Reuters)

On April 2nd, Saudi Arabia, Kuwait, Oman, Iraq, Algeria, and the United Arab Emirates (UAE) voluntarily agreed to cut oil production this year. Some forecasters predict that gasoline prices could rise by 10-15% following the decision by OPEC and OPEC+ countries.

Experts also suggest that marginal changes in supply can have a significant impact on prices.

Author Rick Newman wrote on Yahoo Finance that Saudi Arabia expressed a desire to support prices, assisting Russia in its special military operation in Ukraine. Oil exports are Moscow's largest source of income. Therefore, the decision to cut oil production could help Saudi Arabia protect its own economic interests, and assisting Russia – whether intentionally or unintentionally – has created a "dangerous geopolitical curtain."

Rising energy prices could push inflation up in the US. Inflation has fallen from 9% to 6%, allowing the Federal Reserve to slow the pace of interest rate hikes.

Some economists argue that the Fed should halt interest rate hikes entirely, given the recent instability among some central banks. If inflation rises sharply, the Fed will have to resume raising interest rates, rather than easing for a period of time.

In addition, the decision to cut oil production comes at a time when US President Joe Biden is about to launch his re-election campaign.

However, author Rick Newman also noted, "Washington holds a few cards in its hand."

The world's largest economy is no longer as dependent on Middle Eastern oil-producing nations as it once was, and OPEC+'s production cuts could benefit US President Joe Biden.

First, this decision could pave the way for resolving the debt ceiling impasse, which could soon reach a (man-made) crisis in the US. It could also provide impetus for reforms aimed at protecting carbon and green energy sources.

Analysts at investment bank Raymond James wrote in response to OPEC's announcement of production cuts: "We expect a broader opportunity for possible action from Washington to increase domestic energy production."

The Republican-controlled House of Representatives recently passed an energy bill. This bill would streamline licensing for natural gas pipelines and other infrastructure, and enact other measures to protect fossil fuel supplies.

The bill includes several elements that Democrats would never vote on, such as repealing parts of their own green energy bill from last year.

In addition, President Biden recently approved an oil drilling project in Alaska and authorized new drilling in the Gulf of Mexico. "This appears to be an implicit acknowledgment that the U.S. will need a plentiful supply of oil and natural gas for decades to come, and the best source isn't Saudi Arabia or Russia, but rather the deposits of the American people," author Rick Newman observes.

In the US, Democrats and Republicans are arguing over the debt ceiling and need some compromise to end the deadlock and allow the US Treasury to borrow money to pay the nation's bills. Energy could be the path to a compromise to resolve this issue.

Analysts at Raymond James say that new domestic energy sources are becoming increasingly intertwined with negotiations over a debt ceiling agreement.

They said: "The pace of negotiations surrounding the debt limit agreement will accelerate around mid-April 2023. The latest news from OPEC will help the US consider energy policy a central aspect of the negotiations, especially as OPEC's actions have once again heightened concerns about energy security."

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