- President Biden is scrambling to lower gas prices ahead of the midterm elections, but he has few tools to do so.
- US gas prices have hit records, and the strategic petroleum release won't be able to bring them down.
- "There are very few tools the US administration has because the biggest driver for gasoline prices are driven by global fundamentals," a top analyst told Insider.
The cost of gas is surging across the US, but drivers shouldn't expect any action taken by President Joe Biden's administration to bring down prices at the pump ahead of summer driving season.
The White House is staring down a global energy crunch sparked by Russia's invasion of Ukraine, as well as domestic supply strains across energy commodities.
"There are very few tools the US administration has because the biggest drivers for gasoline prices are driven by global fundamentals," Matt Smith, lead oil analyst, Americas at Kpler, told Insider. "You can make decisions on domestic supply, but if it doesn't have an impact on the global picture, it won't have an impact at the pump."
Gas prices have blown past record after record in recent weeks. On Friday, the average gallon of gas in the US hit $4.599 — roughly 51% higher than a year ago, according to AAA data. The average on Monday, after drivers hit the road for Memorial Day getaways, was $4.619.
Even prior to the war in Ukraine, however, supply was tight.
"[Before February], US inventories were low compared to historical benchmarks — for crude, gas and diesel," Smith said. "Meanwhile, demand was getting back to pre-pandemic levels while supply lagged as refining activity remained subdued."
At the end of March, President Biden moved to stem rising gas prices and compensate for the loss of Russian supply by ordering the release of 1 million barrels a day over six months from the Strategic Petroleum Reserves.
About 59% of the price of gas at the pump comes from the cost of crude in global markets, but the additional release of barrels, or even increases in US production, would only add a "proverbial drop in the bucket in the 100-million-barrel-per-day global oil market," Dallas Fed economists wrote earlier this month.
Yet, according to Smith, there's little else Biden can do.
"They already used their biggest bullet [with the strategic petroleum release]," Smith said. "That was probably the best shot of keeping prices down, since that crude is ultimately going to make its way to the global market, in theory."
Amid the scramble to bring down prices ahead of the midterm elections, the White House has reached out to the oil industry to inquire about firing up shuttered refineries, Bloomberg reported Friday. But there's a meager chance that comes to fruition, Smith explained.
"Companies had already assessed the cost of restarting and running these refineries and judged it an uneconomic proposition," he said. "There's little the US administration can do to get these refineries to restart — unless they wanted to invest the money themselves, which isn't going to happen."
Biden has not yet ruled out using export restrictions to ease soaring fuel costs, US Energy Secretary Jennifer Granhold said Tuesday. She told CNN the President is "obsessed" with lowering prices.
But oil producers oppose potential curbs.
"Restricting US energy exports would only create further instability in the marketplace, diminish American energy leadership and represent a grave disservice to our allies," Frank Macchiarola of the American Petroleum Institute trade group, told Reuters.
Ethanol and a tax holiday
The government has two more levers it could pull in an attempt to bring prices down, according to Smith, but those, too, will likely be ineffectual.
The US Environmental Protection Agency issued an emergency waiver for higher-ethanol gasoline blends for 20 days in May. This temporarily allows more gasoline to enter the market and expands the available volume of fuel — but Biden could move to allow the blend for the duration of the summer, and also lift anti-smog regulations.
"Blending ethanol into gasoline makes it cheaper, but it creates smog," Smith said.
One other move would be for Biden to implement a federal tax holiday on gasoline for the summer — which the governor of Georgia has already done to suspend the state's 29.1 cents-a-gallon motor fuel tax.
A tax holiday could help ease prices, Smith said, but it wouldn't cause any significant drop, especially against the backdrop of low energy inventories.
"Biden can't really control global oil prices even though they've given it their best shot with the strategic petroleum release," Smith said. "Now they're in a fairly desperate situation. It may be an impossible task."