Why gas prices are likely to go back up soon

by Gabe Fleisher

Good morning! It’s Thursday, October 6, 2022. Election Day 2022 is 33 days away. Election Day 2024 is 761 days away.

Why gas prices are likely to go back up soon

Do you remember back in July, when President Biden controversially fist-bumped Crown Prince Mohammed bin Salman on a trip to Saudi Arabia?

The move was a stark reversal of Biden’s policy towards Saudi Arabia: during the 2020 campaign, he promised to make the country into a “pariah” for its killing of Washington Post journalist Jamal Khashoggi, which was authorized by the crown prince.

Biden himself was reportedly uncomfortable with the chummy visit, but his aides convinced him it was necessary because Saudi Arabia is the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC), a group of countries that control more than 80% of the world’s oil reserves.

At the time, the White House was mounting a full-court press — with Biden’s visit at the center — to convince OPEC to increase oil production, thereby boosting the global supply and bringing gas prices down here in the U.S.

On Wednesday, it became clear that the Biden administration’s efforts had failed, fist bump and all. That’s when OPEC and a coalition of its allies (known as OPEC Plus) announced plans to slash oil production by 2 million barrels per day, a major rebuke to the U.S.

OPEC said the move was made to offer “long-term guidance for the oil market” in light of “the uncertainty that surrounds the global economic and oil market outlooks.”

What are the consequences of the decision? With production down,energy costs — including gas prices — are now expected to raise in the U.S. and across Europe, which could push us even closer to a possible global recession.

The announcement is also a boon to Russia, an OPEC Plus country, as higher oil prices will allow the country to finance its war against Ukraine.

The surprise move comes at an already precarious economic moment. “We now find ourselves in the midst of the most comprehensive tightening of monetary policy the world has seen,” economic historian Adam Tooze wrote in a New York Times guest essay this week, as the U.S. Federal Reserve and other central banks seek to tamp down inflation with repeated interest rate hikes.

“We have never done this before on this scale,” Tooze added. “Will it get inflation down? Very likely. But we are also courting the risk of a global recession that at its worst could bring down housing markets, bankrupt businesses and states, and throw hundreds of millions of people worldwide into unemployment and distress.”

Make no mistake: this is a political story. The direction of our politics is firmly tied up in the state of the economy, especially as poll after poll show inflation and the economy ranking as the top issue for voters heading into next month’s midterm elections.

Throughout his presidency, President Biden’s disapproval rating has been closely correlated with gas prices. One theory to explain the Democratic bounce this summer was that it coincided with a nationwide drop in gas prices. That drop has already begun to reverse itself somewhat, especially in the West Coast. (Some pundits have also said the Democratic surge is fading.)

OPEC’s announcement is likely to push gas prices even higher — which could be disastrous for Democrats trying to move focus away from the economy in the final stage of the midterm campaign.

What else to watch: How the U.S. responds to OPEC’s move. A White House statement criticizing the decision said that the Biden administration will “consult with Congress on additional tools and authorities to reduce OPEC’s control over energy prices.” That’s a signal that the White House could back a bipartisan bill, known as the NOPEC Act, which would revoke “sovereign immunity,” normally granted to foreign governments, for OPEC countries violating U.S. antitrust laws.

Under the legislation, which was approved by the Senate Judiciary Committee in a 17-4 vote in May, the Justice Department would be able to file an antitrust lawsuit against OPEC for coordinating to fix oil prices.

The White House also announced plans to release 10 million more barrels of oil from the U.S. Strategic Petroleum Reserve. Meanwhile, per the Wall Street Journal, the U.S. is preparing to “scale down sanctions on Venezuela’s authoritarian regime to allow Chevron Corp to resume pumping oil there.” Both moves would be aimed at increasing the oil supply available to the U.S.

Meanwhile, a growing number of Democratic lawmakers are calling on the White House to swiftly punish Saudi Arabia for its role in OPEC’s decision. “I think it’s time for a wholesale re-evaluation of the U.S. alliance with Saudi Arabia," Sen. Chris Murphy (D-CT) told CNBC this week.

“President Biden ... should call the King himself," Rep. Ro Khanna (D-CA) told Axios. "He should say you have five days to reverse your decision. If not, I am going to work with Congress to pass a ban on supplying air parts to your Air Force.”

“The American people have had enough,” he continued. “We will not be bullied by a third-rate power that is committing human rights atrocities."

What else you should know

➞ A federal appeals court ruled Wednesday that the Obama-era Deferred Action for Childhood Arrivals (DACA) program, which protects “Dreamers” who arrived in the U.S. illegally as minors from deportation, is a violation of U.S. immigration law. Protections for current DACA recipients will stay in place as the case works its way through the courts, although the Biden administration will remain unable to approve new applications. Read more

➞ North Korea is continuing to increase its provocations of U.S. allies in the region. The country fired two more short-range ballistic missiles on Thursday, a day after firing a missile over Japan for the first time in five years. North Korea also flew 12 warplanes near its border with South Korea on Thursday, another unusual step. Read more

More news to know:

• Daily Beast: “She Had an Abortion With Herschel Walker. She Also Had a Child With Him.”
• AP: “Drug companies in opioid crisis donated $27K to Ohio’s Ryan”
• NBC: “Justice Jackson makes waves in first Supreme Court arguments”
• Politico: “Senate Dems face brutal 2024 map with at least eight undecided incumbents”
• WaPo: “Biden is actually Greek. And Jewish. And raised by Puerto Ricans.”

Today at a glance

All times Eastern. Click on an event’s time to watch.

AT THE WHITE HOUSE: President Biden will travel to New York and New Jersey today. He’ll tour IBM’s headquarters in Poughkeepsie, New York (1:20 pm) and deliver remarks on “ensuring the future is made in America” as IBM announces a $20 billion investment towards that goal (2 pm). Later, he’ll attend Democratic Party fundraisers in Red Bank, New Jersey (5 pm) and New York City (8 pm) before returning to Washington.

• Vice President Harris will ceremonially swear in Dr. Arati Prabhakar as director of the White House Office of Science and Technology Policy (4 pm). Prabhakar was confirmed by the Senate in a 56-40 vote last month.
• White House press secretary Karine Jean-Pierre will hold a press gaggle aboard Air Force One during the flight to Poughkeepsie.

ON THE HILL: The House and Senate are not scheduled to hold votes until after the midterm elections.  

IN THE COURTS: The Supreme Court is not meeting today.

Before I go...

Here’s a story I enjoyed: “Letters to Jeb Bush,” via the New Yorker.

The piece is about a struggling novelist who used messages to Jeb Bush’s public email address as a diary to vent about his life — until the diary started writing back to him.

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If you have any questions or feedback, feel free to email me: my inbox is always open.

Thanks for waking up to politics! Have a great day.

— Gabe