Biden is taking the heat for higher gasoline prices during the summer driving season
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Wounded after U.S. President Joe Biden cancelled the Keystone XL pipeline that would have shipped Alberta crude to the United States, the province snapped at the White House’s call on the Organization of Petroleum Exporting Countries Wednesday to raise production faster than planned.
“The Biden administration pleading with OPEC to increase oil production to rescue the United States from high fuel prices months after cancelling the Keystone XL pipeline smacks of hypocrisy,” Alberta Energy Minister Sonya Savage said in a statement Wednesday. “Keystone XL would have provided Americans with a stable source of energy from a trusted ally and friend.”
Alberta Premier Jason Kenney was also critical of the Biden Administration.
“The same US administration that retroactively cancelled Canada’s Keystone XL Pipeline is now pleading with OPEC & Russia to produce & ship more crude oil,” the premier tweeted. “This comes just as Vladimir Putin’s Russia has become the 2nd largest exporter of oil to the US.”
The pipeline project, challenged by environmentalists for more than a decade, was expected to pump 830,000 barrels a day of Alberta crude to Nebraska, connecting to pipelines feeding refineries in Texas. It was abandoned by owner TC Energy Corp. in June after the Biden administration revoked a presidential permit on assuming office in January. President Barack Obama had blocked the project and President Donald Trump had revived it.
Jake Sullivan, Biden’s national security adviser, criticized global oil producers Wednesday, saying, “At a critical moment in the global recovery, this is simply not enough.” Sullivan also said in the statement: “Higher gasoline costs, if left unchecked, risk harming the ongoing global recovery.”
Canada is the U.S.’s largest source of oil imports, shipping just over 4 million barrels per day of oil on average in May. Russia recently emerged as the second largest source of oil imports, shipping 844,000 bpd to the U.S. in May, eclipsing Mexico.
As the pandemic depressed oil demand last year, the benchmark West Texas Intermediate crude briefly traded at negative US$36.98 a barrel in April 2020, compelling the 13-member OPEC and 11 other major oil producers such as Russia, to cut supply by about 10 million bpd, or around 10 per cent of global demand. In July, the group agreed to increase production by 400,000 bpd starting this month. The reduction now stands at about 5.8 million bpd, and OPEC has agreed to erase that by year’s end.
But with the U.S. economy reopening rapidly, demand is surging but production hasn’t kept up. WTI has been trading above US$60 a barrel since February, according to the U.S. Energy Information Administration, while average U.S. retail gasoline prices have jumped to US$3.17 a gallon in August from US$1.94 a gallon in April 2020. U.S. crude dipped 0.03 per cent to US$69.23 a barrel Thursday, while Brent crude was flat at US$71.43 per barrel.
Biden is taking the heat for higher gasoline prices during the summer driving season, with Republicans on social media attempting to link prices at the pump with his Keystone XL decision, efforts to disincentivize domestic oil production and plans for higher taxes in a US$3.5 trillion budget blueprint approved Wednesday.
“Our producers can easily produce that oil if your Administration will just stay out of the way,” tweeted George Abbott, the Republican governor of Texas. “Allow American workers—not OPEC—(to) produce the oil that can reduce the price of gasoline. Don’t make us dependent on foreign sources of energy.”
Other Republicans also took the opportunity to criticize the government that has been aggressively pushing out green energy policies to reduce the country’s carbon footprint.
“It’s pretty simple: if the President is suddenly worried about rising gas prices, he needs to stop killing our own energy production here on American soil,” Republican Senator John Cornyn of Texas said in a statement. “Begging the Saudis to increase production while the White House ties one hand behind the backs of American energy companies is pathetic and embarrassing.”
However, OPEC may not immediately pay heed to the White House’s call as the Delta variant is crimping global oil demand.
On Thursday, the International Energy Agency cut its forecast for global oil demand “sharply” for the rest of this year as the resurgent pandemic hits major consumers, and predicted a new surplus in 2022.
It’s a marked reversal for the Paris-based agency, which just a month ago was urging the OPEC+ alliance to open the taps or risk a damaging spike in prices. The oil cartel had responded to calls to hike supply, which is now arriving just as consumption slackens.
“The immediate boost from OPEC+ is colliding with slower demand growth and higher output from outside the alliance, stamping out lingering suggestions of a near-term supply crunch or super cycle,” the IEA said in its monthly report.
U.S. oil production hit a record high of 12.3 million bpd in 2019 before dropping to about 11.3 million bpd during the pandemic, according to the EIA.
Helima Croft, head of global commodity strategy at RBC Capital Markets, says the administration’s “real anxiety appears to be about retail gasoline prices that have risen by over 40 per cent since the start of the year.” Biden doesn’t want to jeopardize his climate change-fighting policy target of the U.S. achieving net zero carbon production by 2050, she says.
“Encouraging greater U.S. oil production appears to be an absolute non-starter,” Croft says in an Aug. 11 report. “Hence calling on OPEC may be one of the only levers they can pull to try to keep U.S. gasoline prices in check while at the same time preserving their climate credentials.”
Part of the gasoline price surge lies with refining capacity hurt by “less than robust economics as well as the structural issue of refinery closures in recent years,” Croft says.
“Gasoline inventories have put in a new five-year seasonal low, an 8.6 million barrel deficit, recording the largest deficit since the winter storm freezeover knocked out U.S. refining capacity back in March. Moreover, U.S. crude production remains 1.8 million barrels a day below pre-pandemic levels, which has left crude inventories deeply in deficit territory since the start of May.”
Biden’s call on OPEC “serves as a more politically palpable way to deal with spiking pump prices” as opposed to how Trump urged producers to “drill baby drill” in domestic oil fields, Croft says.
For Minister Savage, “the Biden administration’s plea for more oil confirms there will continue to be demand for Canadian and Alberta energy, and highlights the need for affordable and reliable energy as the world seeks to lower emissions.”
“The bottom line is the world needs Alberta’s energy.”
Financial Post
With files from Thomson Reuters
Divisions within the Bank of Canada over the timing of a much-anticipated cut to its key overnight interest rate stem from concerns of some members of the central bank’s governing council that progress on taming inflation could stall in the face of stronger domestic demand — or even pick up again in the event of “new surprises.”
“Some members emphasized that, with the economy performing well, the risk had diminished that restrictive monetary policy would slow the economy more than necessary to return inflation to target,” according to a summary of deliberations for the April 10 rate decision that were published Wednesday. “They felt more reassurance was needed to reduce the risk that the downward progress on core inflation would stall, and to avoid jeopardizing the progress made thus far.”
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Others argued that there were additional risks from keeping monetary policy too tight in light of progress already made to tame inflation, which had come down “significantly” across most goods and services.
Some pointed out that the distribution of inflation rates across components of the consumer price index had approached normal, despite outsized price increases and decreases in certain components.
“Coupled with indicators that the economy was in excess supply and with a base case projection showing the output gap starting to close only next year, they felt there was a risk of keeping monetary policy more restrictive than needed.”
In the end, though, the central bankers agreed to hold the rate at five per cent because inflation remained too high and there were still upside risks to the outlook, albeit “less acute” than in the past couple of years.
Despite the “diversity of views” about when conditions will warrant cutting the interest rate, central bank officials agreed that monetary policy easing would probably be gradual, given risks to the outlook and the slow path for returning inflation to target, according to the summary of deliberations.
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They considered a number of potential risks to the outlook for economic growth and inflation, including housing and immigration, according to summary of deliberations.
The central bankers discussed the risk that housing market activity could accelerate and further boost shelter prices and acknowledged that easing monetary policy could increase the likelihood of this risk materializing. They concluded that their focus on measures such as CPI-trim, which strips out extreme movements in price changes, allowed them to effectively look through mortgage interest costs while capturing other shelter prices such as rent that are more reflective of supply and demand in housing.
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They also agreed to keep a close eye on immigration in the coming quarters due to uncertainty around recent announcements by the federal government.
“The projection incorporated continued strong population growth in the first half of 2024 followed by much softer growth, in line with the federal government’s target for reducing the share of non-permanent residents,” the summary said. “But details of how these plans will be implemented had not been announced. Governing council recognized that there was some uncertainty about future population growth and agreed it would be important to update the population forecast each quarter.”
• Email: bshecter@nationalpost.com
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Shares in US tech giant Meta have sunk in US after-hours trading despite better-than-expected earnings.
The Facebook and Instagram owner said expenses would be higher this year as it spends heavily on artificial intelligence (AI).
Its shares fell more than 15% after it said it expected to spend billions of dollars more than it had previously predicted in 2024.
Meta has been updating its ad-buying products with AI tools to boost earnings growth.
It has also been introducing more AI features on its social media platforms such as chat assistants.
The firm said it now expected to spend between $35bn and $40bn, (£28bn-32bn) in 2024, up from an earlier prediction of $30-$37bn.
Its shares fell despite it beating expectations on its earnings.
First quarter revenue rose 27% to $36.46bn, while analysts had expected earnings of $36.16bn.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said its spending plans were “aggressive”.
She said Meta’s “substantial investment” in AI has helped it get people to spend time on its platforms, so advertisers are willing to spend more money “in a time when digital advertising uncertainty remains rife”.
More than 50 countries are due to have elections this year, she said, “which hugely increases uncertainty” and can spook advertisers.
She added that Meta’s “fortunes are probably also being bolstered by TikTok’s uncertain future in the US”.
Meta’s rival has said it will fight an “unconstitutional” law that could result in TikTok being sold or banned in the US.
President Biden has signed into law a bill which gives the social media platform’s Chinese owner, ByteDance, nine months to sell off the app or it will be blocked in the US.
Ms Lund-Yates said that “looking further ahead, the biggest risk [for Meta] remains regulatory”.
Last year, Meta was fined €1.2bn (£1bn) by Ireland’s data authorities for mishandling people’s data when transferring it between Europe and the US.
And in February of this year, Meta chief executive Mark Zuckerberg faced blistering criticism from US lawmakers and was pushed to apologise to families of victims of child sexual exploitation.
Ms Lund-Yates added that the firm has “more than enough resources to throw at legal challenges, but that doesn’t rule out the risks of ups and downs in market sentiment”.
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Oil companies planning to ship crude on the expanded Trans Mountain pipeline in Canada are concerned that the project may not begin full service on May 1 but they would be nevertheless obligated to pay tolls from that date.
In a letter to the Canada Energy Regulator (CER), Suncor Energy and other shippers including BP and Marathon Petroleum have expressed doubts that Trans Mountain will start full service on May 1, as previously communicated, Reuters reports.
Trans Mountain Corporation, the government-owned entity that completed the pipeline construction, told Reuters in an email that line fill on the expanded pipeline would be completed in early May.
After a series of delays, cost overruns, and legal challenges, the expanded Trans Mountain oil pipeline will open for business on May 1, the company said early this month.
“The Commencement Date for commercial operation of the expanded system will be May 1, 2024. Trans Mountain anticipates providing service for all contracted volumes in the month of May,” Trans Mountain Corporation said in early April.
The expanded pipeline will triple the capacity of the original pipeline to 890,000 barrels per day (bpd) from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia on the Pacific Coast.
The Federal Government of Canada bought the Trans Mountain Pipeline Expansion (TMX) from Kinder Morgan back in 2018, together with related pipeline and terminal assets. That cost the federal government $3.3 billion (C$4.5 billion) at the time. Since then, the costs for the expansion of the pipeline have quadrupled to nearly $23 billion (C$30.9 billion).
The expansion project has faced continuous delays over the years. In one of the latest roadblocks in December, the Canadian regulator denied a variance request from the project developer to move a small section of the pipeline due to challenging drilling conditions.
The company asked the regulator to reconsider its decision, and received on January 12 a conditional approval, avoiding what could have been another two-year delay to start-up.
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