By Jessica Resnick-Ault

NEW YORK, (Reuters) – Two months after Joe Biden declared an unprecedented alliance of major oil-consuming countries to lower rising fuel costs, the prices have reached multi-year highs. Biden is out of options for stopping the rally.

The global benchmark for oil was $84 per barrel on Wednesday. Leading analysts forecast that oil will surpass $100 per barrel within the first quarter. [O/R]

Biden facilitated a coordinated release oil from strategically reserves with Japan. South Korea. Britain. It helped reduce prices even though China was not able to participate in it.

Brent dropped briefly below $70 per barrel for a brief time, but it was short-lived.

Biden, as well any U.S. President, will be facing political problems due to rising oil prices. The United States is the largest consumer of gasoline worldwide, using approximately 9 million barrels of motor fuel per day (bpd). About two-thirds of the gasoline price is determined by crude oil prices, which makes the cost of this commodity a significant part of consumer budgets.

Republicans will point fingers at Biden (a Democrat) for raising prices. However, the fact is that global factors are more important than any U.S. government policy.

Investors are buying oil in anticipation that Omicron coronavirus variation will have limited impact on global economic activity. The current U.S. oil prices are currently 80 cents per gallon less than their 2008 record. However, this is expected to change.

WHY IS OIL PRICE RISING AGAIN

According to the International Energy Association, although oil demand has recovered to levels pre-pandemic, it is still at around 99 million barrels per day. However, supply of crude oil remains at about a million barrels per day below that level.

According to economists, the price rise has been caused by a combination of high demand and weak investments as well as a shortage of available capacity. The Organization of the Petroleum Exporting Countries (OPEC+) and its allies including Russia have consistently failed to meet their targeted supply growth targets.

Mike Tran, RBC Capital Markets commodity strategist, stated that OPEC+ is still committed to adding 400,000 bpd each month to the market, however, his data shows that they are increasing monthly by closer to 250,000 bpd.

The average U.S. output was roughly 11 million barrels per day in the second quarter of 2021, as compared to a peak at 13 million at the close of 2019.

CAN YOU BIDEN PRESSURE OPEC AGAIN?!

Biden, last year, joined his predecessors that at times pressed OPEC to increase output. However with variable success.

In November, the president proposed several actions to reduce fuel costs. In conjunction with Japan and South Korea, the White House announced that it would be releasing barrels from its strategic reserve.

Biden also stated that China would participate, however, China, which is the largest crude oil importer in the world, indicated it would continue to sell its resources on its own terms.

As the pandemic erupted, the group reduced supply by 9.7 million barrels per day (a new record). Although it has slowly restored output, OPEC+ still holds more than 3,000,000 bpd of supply.

What are BIDEN’S other options?

Biden might increase U.S. Strategic Petroleum Reserve sales. But, this supply is small and insignificant compared to the market size.

SPR crude inventories fell to 593,000,000 barrels in November 2002, which is the lowest point since Nov 2002.

Biden announced in November that 50 million barrels of oil would be sold and lent to the United States. This is roughly half of global consumption for one day.

A federal gas tax holiday could be considered by the president; federal gasoline excise is 18.4c per gallon.

This idea was first proposed by lawmakers in 2008 in response to an increase in gasoline prices to $4 per gallon. However, because gasoline cannot be produced quickly, it would only drive up demand which, in turn, would push prices higher.