Yahoo Finance Gas prices cloud Biden’s reelection outlook
President Biden surely hoped the worst was over after gasoline prices hit $5 per gallon last year, then drifted down to the $3.50 range.
But gas prices are a specter Biden can’t shake. They’ve crept back up to around $3.80, and forecasts for oil prices suggest gas prices could soon crest $4 per gallon. “Continuing crude price strength could weigh on President Joe Biden’s reelection bid,” research firm Clearview Energy Partners advised in a Sept. 5 analysis.
The Biden economy features strong job growth and solid output gains, but voters still give Biden negative marks. In a recent Wall Street Journal poll, just 37% of respondents approve of Biden’s handling of the economy, while 59% disapprove. Biden’s overall job approval rating is a wan 42%, dangerously low for an incumbent seeking reelection. Polls show Biden basically tied in a theoretical rematch with Donald Trump, the leading Republican contender.
Gas prices and inflation are the biggest blot on Biden’s economic record, and likely the main thing depressing voters’ views of Biden’s presidency. Overall inflation has dropped from a peak of 9% in 2022 to just 3.2% now. Three broad categories remain elevated, however: food, rent, and energy.
Food and rent prices are likely to normalize within the next year, as disruptions related to the COVID pandemic finally abate. But upward pressure on gas prices seems likely to remain, largely because factors beyond Biden’s control are poised to send oil prices up. Saudi Arabia recently said it plans to extend an oil production cut of 1 million barrels per day through the end of the year. A Russian production cut of 300,000 barrels per day is likely to stick, too. Governments control energy output in those countries, and they sometimes earn more energy revenue by selling less oil at higher prices.
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Production cuts are already boosting oil prices, with US crude up about 28% since the end of June, to $87 a barrel. In a Sept. 4 research note, Bank of America said it expected US crude to level off around $93 per barrel, with $100 possible.
The last time oil prices were at $100, in July 2022, gasoline prices were around $4.40 per gallon. The correlation between oil and gasoline prices isn’t exact, but any gas price above $4 has to worry Biden. Even though gasoline accounts for less than 3% of household spending, it’s the most visible price most Americans see, and drivers get a reminder of the pain with every fill-up. Crossing the threshold into $4 gas or $5 gas is like a red alert to consumers signaling something is wrong.
Gas prices under Biden have averaged $3.62 per gallon, the highest under any president. Adjusted for inflation, gas prices were higher during President Obama’s first term, at $4.44 per gallon, in 2023 dollars. Biden still can’t be happy with an average inflation-adjusted gas price of $3.94, the second-highest, after Obama.
Biden’s verbal hostility toward fossil fuels, combined with his embrace of green energy, leaves the impression that Biden has somehow shackled the oil and gas industries, forcing prices up. Not really. The advent of new “fracking” technology led to a boom in US energy production, starting around 2011. But American drillers overproduced for a decade or so, aiming to grow at the expense of profitability. That lowered oil and gasoline prices during Obama’s second term and Donald Trump’s presidency, conditioning drivers to abnormally low gasoline prices that were basically subsidized by poor returns for drillers.
When the COVID pandemic hit in 2020, energy prices crashed, causing massive losses at fossil-fuel producers. Since then, drillers and their investors have flipped the script and emphasized profits over growth, which has reduced US supply compared with where it might be if drillers were still willing to produce at a loss. Even so, US oil production is likely to hit a new record high this year or next, as producers cash in on higher prices by drilling more.
Thing is, oil prices are set in global markets no American president can control. Biden has tried. He sold 180 million barrels of oil from the US reserve in 2022, leaving that emergency supply at the lowest level since 1983. That may eliminate the reserve as a possible source of oil supply heading into the thick of the 2024 election cycle.
Biden has also allowed Venezuela to import a bit more oil to the United States, and there may be a quiet deal afoot to let sanctioned Iran export more oil. There may also be a tacit agreement between Washington and Riyadh for more Saudi production if US gasoline prices get too high and Biden needs an assist.
If there's any encouragement for Biden, it's that Obama won reelection in 2012 with gas prices considerably higher than the average of the prior five years — the same situation Biden faces now. But overall inflation was low under Obama, and high gas prices didn't remind voters of everything else that was more expensive. Not so, now.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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Correction: A previous version of this article listed the incorrect figure for Saudi Arabia's oil production cut. We regret the error.
