By Arianna Skibell
Politico, Jul 11, 2022
President Joe Biden is set to visit Saudi Arabia later this week, on a trip he says is intended to shore up global supply chains and encourage diplomacy and cooperation.
But the question many are asking is: What could it mean for gas prices?
That’s because Saudi Arabia has the second-largest oil reserves in the world — and the U.S. has made it clear it wants all the Persian Gulf’s oil states to boost their output. The conventional wisdom is that more oil produced means cheaper gas at the pump.
The reality is more complicated.
Saudi Arabia doesn’t have a lot more oil to give; it’s struggling to meet its own production targets. The release of any more oil also would require the kingdom to forge a consensus among the OPEC+ alliance.
“There’s no way of visiting Saudi Arabia without it being in some sort of relationship to oil,” said Paul Sankey, lead analyst at Sankey Research, a research firm. “But in this instance, it’s not obvious that there’s anything that can be done.”
Even if the Saudis flooded the global market with more oil, that’s not a guarantee gasoline prices would come down. That’s because the volatility in oil prices over the past few weeks has little to do with supply disruptions, says Ben Cahill, senior fellow at the Center for Strategic and International Studies.
The uncertainty caused by Russia’s invasion of Ukraine has roiled global oil markets.
“A lot of the price run-up is due to geopolitics and financial speculation,” Cahill said. “If you look at the physical market, the actual demand and trading of the physical barrels of crude, there’s really no disruption anywhere.”
The president has sought to downplay the idea that his trip is meant to bring down fuel prices: Biden told reporters last month that he won’t ask Saudi leaders directly to increase oil production.
But Cahill says the president has few available options for dealing with soaring gasoline prices, which today averaged $4.678 a gallon nationwide, according to AAA, down from over $5 last month. And asking OPEC for help is one of them.
“That won’t have an immediate impact, but this kind of dialogue between Washington and Riyadh is constructive and it should be welcomed,” he said.
Still, Cahill said the trip itself likely has more to do with regional security issues than oil production.
As a presidential candidate, Biden pledged to make Saudi Arabia a “pariah” after a U.S. intelligence report determined Saudi Crown Prince Mohammed bin Salman was responsible for the murder and dismemberment of Washington Post journalist Jamal Khashoggi.
But in a Washington Post op-ed this weekend, Biden defended his trip saying it is necessary for U.S. security interests. The region is “essential to global trade and the supply chains we rely on,” especially in light of sanctions on Russia as punishment for its invasion of Ukraine, he said.