After statements about the ban on the import of Russian hydrocarbons, gasoline in the United States has risen in price to a record high. Back in the fall, President Biden promised to drastically cut fuel prices. It turned out the opposite. There is no way to do without raw materials from Russia: American refineries need “heavy” oil. In search of alternatives, the White House is persuading Venezuela, the Saudis and the UAE to increase supplies. But no one seems to be willing to help.
Take off on a record
The American Automobile Association reported that gasoline costs $4.17 per gallon ($1.2 per liter), which has never happened before. Fuel prices have been going up since January 2021. Adding fuel to the fire was the May cyber attack on Colonial Pipeline, one of the largest pipeline operators in the United States, which supplies 45% of the fuel to the East Coast, including gasoline, diesel and fuel oil for home heating.
Washington blamed OPEC+ for the price hike. The cartel is now increasing daily production by 400,000 barrels every month, gradually returning to normal after the biggest one-time cut in history last year. However, this is not enough for the US.
“The pandemic has affected the supply chain. But if we talk about gasoline, this is a consequence of the fact that Russia and OPEC refuse to produce more,” Biden argued. Japan and India have also called for more output as restrictions are lifted around the world and production ra-mps up. Nevertheless, OP-EC + maintains the same pace. The unified position of Russia and Saudi Arabia became decisive. The decision was explained by the risks of a new oversupply.
Biden nevertheless assured: he will not leave the matter like that. And at the end of autumn he promised a “dramatic” price reduction in the next three years. It didn’t work out.
The conflict between U-kraine and Russia has alr-eady sent American oil pri-ces to the peaks of 2008 – for $100. And the world ro-se to a maximum not seen since 2012. Crude oil is the main component of gasoline and accounts for 56% of the cost of fuel at gas stations.
As Andrew Hunter, senior economist at US Capital Economics, points out, “There’s still a lot of pain ahead.” The current surge in gasoline is $75 billion in annual household spending.
In such a situation, Biden’s decision to ban Russian energy resources looks like a shot in the leg, although, at first glance, dependence on Russia is not so great. In 2020, Moscow, having displaced Riyadh, which sharply reduced exports, came in second place among US suppliers. The current figure is about 245 thousand barrels per day.
Nothing to replace
The question is even in quantity, but in characteristics. Russia produces heavier, higher-sulphur feedstock, which US refineries process into gasoline, die-sel and jet fuel. This type of oil is especially needed in the West Coast and Nort-heast due to geographical problems with the delivery of gas products there.
Distillate fuel stocks on the East Coast are at a six-year low, according to the US Energy Information Administration (EIA). At the same time, in October, prices reached the level of 2014. I had to turn to Russia for help. At the end of November, four tankers arrived in the United States with two million barrels of diesel fuel on board (the maximum since 2018). In February, they bought another 1.5 million barrels: 22% of total imports in January-February.
The US depends on Russia for a “balanced portfolio of refineries” and dependency has increased in recent years due to economic sanctions on another major oil producer, Venezuela.
Break through the soil
Now, in search of alternatives, they knock on all doors. According to Reuters, citing sources in the US administration, on March 5, officials met in Caracas with Venezuelan President Nicolas Maduro. US officials have promised to ease sanctions if Venezuela agrees to supply oil. They suggested, for example, “to sell through Western companies.”
However, according to the agency, the delegation returned with nothing. Maduro set conditions that the United States called “obviously impossible”: the abolition of all restrictions against officials and full control of the Venezuelan state-owned company PDVSA.
But it’s not only that. The destroyed oil industry of Venezuela is not able to replace Russian supplies. As Forbes notes, in order to return production in the country to its previous level, 250 billion dollars of investment and seven to eight years are needed to restore infrastructure.
Hut on the edge
Europe is clearly not yet ready to follow Biden. According to Josep Borrell, Brussels is not going to ban direct imports of oil, oil products, gas and coal from Russia. But people were offered to freeze a little: to lower the temperature in their homes in order to reduce their energy dependence on Moscow.
Donald Trump did not miss the opportunity to criticize the decisions of the White House. “Breaking News: Highest Gasoline Prices in History! Do You Miss Me Already?” Most European countries will not boycott Russian oil and gas. “As always, the United States is left alone, and Europe takes advantage of this as long as we protect them, while we read fake news,” Trump said.
Congress seems to be preparing to evaluate Biden’s decree “on a sober head.” According to Politico, the House of Representatives postponed the vote on a bill to ban energy imports from Russia and review its status in the World Trade Organization (WTO). The reason is objections from the Republicans. They were embarrassed that the text lacked a key provision providing for the severance of trade relations with Russia and Belarus. The White House explained the delay by the need to “discuss with the allies the likely consequences of such a move.”
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