(Bloomberg) — The Biden administration will likely need to tap oil from the country’s emergency reserves to counter a spike in gasoline prices and amid inflation fears during the summer driving season.
Most Read from Bloomberg
The release of oil from the Strategic Petroleum Reserve is in the cards as motor fuel demand is expected to hit a new post-pandemic high with millions of Americans preparing to hit the roads during the summer, when demand peaks, said Vikas Dwivedi, a global oil and gas strategist for Macquarie Group.
“The government will have to release oil from the SPR with a lot of aggressiveness to tame prices,” Dwivedi said in a phone interview. “There are not many tools available and this is one of the most effective.”
Gasoline prices soared 17% this year fueled by a rally in oil prices, which have gained 18% in the same period as supply disruptions tilted global balances into a deficit. Geopolitical tensions in the Middle East, where more than a third of the world’s oil is produced, coupled with production cuts from OPEC+ and its allies and Mexico’s decision to slash oil exports are weighing on the market.
Several factors stand to affect demand and tightening oil supplies as drivers prepare to get behind the wheel this summer. High mortgage rates are keeping would-be homebuyers off the market during what’s typically the busiest season for purchases, suggesting Americans will spend more in entertainment and travel, Dwivedi said. Oil demand is expected to rise while fuelmaking may fall short of expectations as years of delayed maintenance by refiners could lead to breakdowns. And Texas is warning consumers about a possible power emergency this week amid high temperatures, bringing back memories of last year’s record temperatures that forced refineries to curtail fuel production for fear of overheating.
Demand for gasoline is being watched closely in the world’s top oil-consuming nation as rising prices at the pump may spur inflation. The Energy Information Administration recently revised up its 2024 forecast for retail gasoline to $3.60 a gallon from $3.50. High oil prices prompted the Energy Department to shelve plans to replenish the emergency reserves earlier this month. Stockpiles have been slowly inching up in the past year but still stand near a 40-year low after the unprecedented release of 180 million barrels in 2022 following Russia’s invasion of Ukraine.
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.