Americans can expect to pay more at the pump soon
Two of the world’s biggest energy producers are quietly attempting to push oil prices to $100 a barrel—throttling what little savings consumers have put away in recent months.
Saudi Arabia and Russia—ranked no. 2 and 3 in global oil production, respectively—have extended supply cuts to the end of 2023. Combined, the two countries will continue to trim oil production by 1.3 million barrels per day until December.
That’s 1.3 million barrels the global economy desperately needs to keep factories and transport humming along. Supply chains, businesses, and consumers will still get the oil—they’ll just pay more for it.
Supply cuts put upward pressure on oil prices—giving nations a much-needed boost in revenue. When the cuts were originally announced in July, oil prices were down nearly 20% from their yearly peak.
In response, oil has rebounded to $90 a barrel for the first time since November 2022.
With U.S. domestic producers currently pumping out 7.9 million barrels per day—a third less than a year ago—the crunch couldn’t come at a worse time.
Frustration is being felt at the pump all the way up to the Oval Office.
Expensive oil threatens Biden’s economic engine
With the U.S. presidential election just over a year away, President Biden is keen on playing up his economic records—and there are quite a few.
Unemployment remains near historic lows. Inflation has moderated from an eye-watering 40-year high. Manufacturing is booming. All while the Fed raises rates at the fastest clip in over four decades.
Can Saudi Arabia’s cooperation with Russia cast a shadow over Biden's bragging rights? History suggests it could.
According to a study on 207 elections conducted by Harvard University, ”an increase in oil prices one year prior to election significantly reduces the odds of reelection for the incumbent party.”
Sensitivity around elections and oil prices was on display last year when the Saudis hiked oil prices one month before the U.S. midterms.
In fact, this was so shocking that White House officials said they were “reevaluating” the Saudi relationship. Whatever that means.
Consumers can’t catch a break
There’s a very good reason why policymakers are concerned about oil prices: American households can’t live through another surge in energy costs.
According to the Energy Information Administration, the average household could spend up to $2,730 on gasoline this year. This figure was around $2,000 before the pandemic.
During peak inflation in 2022, households spent an equivalent of $5,000 on gasoline, according to Yardeni Research. Oil prices peaked above $122 a barrel that year, according to Bloomberg data.
While oil prices have a long way to go before they match last year’s high, the average household is arguably worse off today than in 2022.
Consumers are maxing out their credit cards and can’t afford to finance a new car. Millions of households are bracing for a $1,000 monthly student loan payment they can’t afford. Desperate Americans are raiding their retirement accounts at a record pace.
Spending more at the pump certainly won’t help matters.