Rising petrol prices create fresh headache for Biden

Welcome back to Energy Source, coming to you from Houston.

A landmark decision from Europe’s top human rights court this week found that the Swiss government’s failure to cut greenhouse gas emissions violated citizens’ rights.

It was the first time an international court has made a ruling on the legal obligations of governments to take action on climate. Expect more litigation to follow.

Today’s newsletter focuses on the intersection of energy and politics on this side of the Atlantic as November’s election looms ever closer.

My colleague Jamie Smyth interviewed Pennsylvania’s governor, Josh Shapiro, who warned that Joe Biden’s suspension of new liquefied natural gas exports could hurt his election chances in a critical swing state.

Something else that could hurt his re-election hopes — up and down the country — is the sharp rise in prices at the pump, which is threatening to derail his battle with inflation and messaging on the economy. That is the subject of today’s Energy Source.

I’ll be digging into this topic further in the coming days with my colleagues in Washington. Do you have thoughts on how much of a threat to Biden’s re-election the rise in petrol (or gasoline) prices could be? Are you beginning to feel the squeeze? Get in touch: myles.mccormick@ft.com.

Thanks for reading — Myles

Pressure at the pump

Petrol prices are (once again) a source of growing disquiet in the White House.

With a little more than six months to go until the election, a sharp climb in prices at the pump is squeezing motorists and threatening to derail the fight against inflation.

That is bad news for Biden as he struggles to convince Americans that price rises have been contained — and that they should give him another four years in residence at 1600 Pennsylvania Avenue. 

The average cost of a gallon of gasoline sat at $3.62 yesterday, according to the motoring group AAA. That was up 7 cents on the previous week and 23 cents on the previous month.

A climb in prices at this time of year, with the approach of the summer driving season, is not unusual. But the latest rise has been rapid and is edging towards the critical $4 per gallon threshold at a very delicate moment for the president.

As Rapidan Energy’s Bob McNally, who advised former president George W Bush on energy policy, put it to me recently: “Nothing terrifies a sitting American president more than a surge in pump prices during an election year.”

Monthly inflation statistics released by the US Bureau of Labor Statistics yesterday showed the seasonally adjusted gasoline index jumping 1.7 per cent in March, after a 3.8 per cent increase in February.

That made fuel price increases a central driver of the broader return to rising inflation. The headline consumer price index increased 3.5 per cent in the 12 months to March, up from a 3.2 per cent uptick a month earlier.

The bounceback in inflation levels undermines the president’s message that prices are under control and sharply reduces the likelihood of an imminent cut in interest rates by the Federal Reserve that could bring down borrowing costs for voters.

Regular readers of Energy Source will know the political ramifications of shifts in fuel prices — good or bad — is a topic we often harp on about. The visibility of prices flashing on the side of highways gives them an outsized role in consumers’ minds as to the state of the wider economy.

As campaigning gathers steam, the increase is providing a clear attack line for Republicans, who have been keen to pin the price rise on the president’s energy policies.

That marks a stark turnaround from just a few months ago when Democrats boasted of a slide in pump prices that they hoped would help convince sceptical voters to give Biden another four years.

In reality, there is little the president can to do stem price increases at the pump in the near term.

The biggest determinant of the price of petrol is the price of crude oil, which has risen sharply in recent months amid tightening global supply and demand dynamics and volatility in the Middle East.

Brent crude, the international benchmark, closed above $90 a barrel yesterday, after breaching that threshold last week for the first time since October.

But the White House is nonetheless sitting up and taking notice — and scrambling for levers it can pull to stem the price rises.

US defence secretary Lloyd Austin this week confirmed the FT’s March scoop that Washington had warned Ukraine to desist from strikes on Russian refineries due to fears that a significant outage could trigger a jump in oil prices.

“Those attacks could have a knock-on effect, in terms of the global energy situation,” Austin told senate hearing on Tuesday.

Last week, the administration cancelled its latest plans to refill the country’s Strategic Petroleum Reserve.

Other options at the administration’s disposal are limited. But those in the know say they are keeping their options open.

“Until recently the administration has demonstrated sang-froid and been seemingly untroubled by higher oil prices,” said McNally.

“But as the election approaches and oil prices creep higher they are now starting to focus on that and ways they can attenuate it.”

Power Points

• Tianqi Lithium’s $4bn bet on Chile is at risk of backfiring as the government works to take back control of the South American country’s vast salt flats.

• German industry is unlikely to fully recover from energy crisis, the head of RWE told the FT.

• Wall Street investors are deploying flocks of sheep to trim the grass covering their solar panel installations as they seek to burnish their green credentials.

• The days of handing out bribes to secure commodity contracts are over, the heads of the world’s biggest trading companies told the FT Commodities Global Summit in Lausanne.

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.