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The European Union‘s plan to ban imports of Russian oil has helped send crude prices up, further dashing President Joe Biden’s hopes of overseeing a reduction in the cost of gasoline any time soon ahead of the November midterm elections.
The Biden administration has carried out a series of actions designed to lower gas prices, including organizing incremental releases of a couple hundred million barrels of Strategic Petroleum Reserve crude oil, but none of them have so far been able to sustain price reductions, continuing to be outmatched by high demand and geopolitical developments related to the war in Ukraine.
DAILY ON ENERGY: THE NEXT FRONT IN THE ENERGY WAR WITH RUSSIA
After European leaders broke news of an embargo agreement on Monday, oil prices climbed and closed above $121 per barrel, up 7% over a week before, as traders weighed additional risks to the supply-demand balance.
The proposal would ban 90% of all Russian oil imports to the European Union by the end of the year, allowing some imports to continue via pipeline. A total embargo would eventually displace around 3.4 million barrels of Russian petroleum exports per day, according to International Energy Agency data based on 2021 export values.
Brent crude, the global benchmark, closed even higher, above $122 per barrel, on Tuesday. It was the highest trading price seen since Brent peaked near $128 in early March, although prices were down on Wednesday, with the high end of intraday trading reaching $118 per barrel.
Analysts expect the embargo to exert additional upward pressure on oil prices without a major drop in fuel demand.
“What we’ve learned is there’s a massive risk premium on oil as a result of Russia,” Neil Beveridge, senior oil analyst at Sanford C. Bernstein, told Bloomberg TV. “Russia is just a huge supplier of energy to the world. If you are to restrict Russian energy flows, you’ve got to make it up from elsewhere.”
The United States reached consecutive gas price records throughout the month of May, many of which were set while crude oil prices were lower than they have been the last few days, suggesting that, all else being equal, higher crude prices will keep that trend going.
Already, the U.S. hit another record on Wednesday of $4.671 per gallon, according to the American Automobile Association.
Oil market analysis firm GasBuddy, which tracks the metric a bit differently, said the average broke $4.70 per gallon on Wednesday afternoon. Patrick De Haan, a petroleum analyst for GasBuddy, wrote of a “storm on the horizon” amid the EU’s embargo plans.
Biden has made lowering gas prices a priority, ordering reserve oil to be sold on an emergency basis and temporarily changing regulations to allow more higher-ethanol blended fuel to be sold during the summer. He has also encouraged domestic oil producers to increase output.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Meanwhile, production has increased, but prices have crept ever higher, with industry players blaming a refinery shortage as a leading culprit.
U.S. retail gasoline averaged $3.119 per gallon during the week ending May 30 of last year. Last week, it was up to $4.727.
