Japan's Sun Rises Again After Decades of Stagnation

Economic

Summary:

He quickly ran into problems...

He quickly ran into problems. The human resources department informed him that Japanese staff were afraid their neighbors would assume they'd been fired if they left home every morning dressed in casual clothes rather than the ubiquitous business suit. Innovation in Japan, brought a radical idea with him for his new colleagues: wear what you like at work.

Kuffner found a solution: lockers to let employees change out of their commute suits. But the consternation showcased a national work culture that in many ways can inhibit change. It was often said that Japan had the best economy for the 1980s: an emphasis on error-free, process-focused high-quality manufacturing. But supposedly not for a software-dominant 21st century that rewarded less linear avenues of thinking.

What's now becoming clear, however, is that a slew of structural changes have taken root in Japan—including cultural shifts that are opening up Asia's No. 2 economy in ways few would have expected a decade or so ago. "Animal spirits" may be taking root, enhancing Japan's appeal to investors and neighboring nations alike.

How some cultural conventions in Japan have held back progress has been widely explored. One example was the systematic manipulation of medical-school test scores in order to keep the number of female students down, out of concern women would work less for reasons including having children.

Discriminating against top performers based on gender stereotypes is hardly a recipe for success in any country. Japan's history of not being very receptive to foreigners has also been seen as a major restraint on economic growth.

In a developed nation where the fertility rate is far below the level needed to keep the population stable, preventing women and foreigners from joining the workforce is a recipe for disaster.

It took Japan's economic stagnation in the 1990s and 2000s to lay the groundwork for a shift in thinking on many fronts—from economic to defense to even social policies. And it gave traction to Shinzo Abe, the late prime minister who pushed for a wholesale rethinking of policy during a term that spanned almost eight years.

Japan's Sun Rises Again After Decades of Stagnation_1

Abe's shake-up included raising the role of women—dubbed womenomics. It was more than just a slogan: the prime-working-age female labor-force participation rate soared to a record of 74.3% by 2022, more than 10 percentage points above where it had trended before the advent of "Abenomics." (By contrast, the US rate has gone down.)

Abe's team also took steps to loosen rules on foreign workers—while minding the political sensitivity of change in this area. An analogy was made to baseball: when foreign players were given a limited entry into Japan's league, there was a public stir, but in time fans cheered on the non-native Japanese players. Perhaps the same could happen with attitudes toward immigration.

The result: last year, the number of foreign workers hit a record 2.04 million, up 12.4% from the year before. "Japan is entering an era of mass foreign immigration," said Junji Ikeda, who heads an agency that sources and supervises foreign workers.

Japan is also now luring a record number of foreign tourists, even though the number of Chinese visitors, the third-biggest group, hasn't recovered to pre-Covid levels. All those international visitors and workers will help to continuously open the country up.

The incorporation of and increasing respect for differences in Japanese society is manifesting itself in other ways as well. Japan's top business lobby, the Keidanren, this week urged the government to embrace letting married couples have separate surnames.

Last year, Japan's Supreme Court for the first time made a ruling on LGBTQ people's rights in the workplace, judging that it was illegal to restrict a transgender person from using certain bathrooms.

At a corporate level, Japan's legendary Ministry of Economy, Trade and Industry is offering major support for foreign companies' projects in Japan. Once known as MITI, the ministry was a mercantilist force in promoting domestic champions on the global stage starting in the 1950s.

Also emerging: a pushback against giant companies bullying their suppliers. The chair of Japan's main automaker association last month said change is afoot such that members will now accept the passing along of cost increases by their suppliers.

Another corporate change is the unwinding of cross-shareholdings of big Japanese firms, long seen by observers as reducing incentives for competition. Foreign executives for decades met with frustration in attempting to persuade Japanese customers to switch suppliers, as firms prioritized long-standing relationships with little regard to cost or efficiency.

All of these changes augur for a more flexible, more dynamic socio-economic backdrop for Japan that should provide major benefits in terms of productivity over time.

Source: Bloomberg

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Devin

Economic

With global growth stabilizing for the first time in three years, inflation reaching a three-year low, and financial conditions brightening, the global economy seems to be on its final approach for a "soft landing." But this positive news cannot obscure the grim reality: more than four years after the COVID-19 pandemic began, the world—especially developing economies—has yet to embark on a promising path toward prosperity.

As a new World Bank Group report shows, the rate at which annual global growth is stabilizing—2.7 percent, on average, through 2026—is significantly lower than the 3.1 percent average in the pre-pandemic decade. That is insufficient to support progress on key development goals. By the end of this year, one in four developing economies will be poorer than they were on the eve of the pandemic. In 2024-2025, most of the world's economies are set to grow more slowly than they did in the decade before COVID-19.

With global interest rates expected to average 4 percent through 2026, double the level of the previous two decades, this outlook is unlikely to change. Rather than hope for a stroke of luck, governments should be working to advance long-term growth by fostering productivity, entrepreneurship, and innovation, in a setting of closer international cooperation.

This is the model that flourished after the fall of the Berlin Wall. Encouraging the flow of goods, capital, and ideas across borders made possible roughly 25 years of unprecedented global prosperity, during which the gap between per capita income in the world's poorest and richest countries narrowed significantly. Before the pandemic, an end to extreme poverty appeared to be within reach.

But international cooperation has been fracturing in recent years. Measures designed to restrain cross-border commercial flows are proliferating. With many major economies holding elections this year, uncertainty over trade policy is higher than at any other moment this century. These developments are taking place amid persistent weakness in investment: in 2013 to 2023, investment growth in developing economies fell to less than half the rate in the 2000s.

This helps to explain why per capita income growth in developing economies is expected to average just 3 percent through 2026, well below the 3.8 percent average in the decade before COVID-19. Many developing economies will not make any progress at all in closing the income gap with their developed-economy counterparts in the near term, and that gap will widen for nearly half in the first five years of this decade—the highest share since the 1990s.

But there are also bright spots in the global economy. The United States, in particular, has shown impressive resilience, with growth remaining buoyant even amid the most rapid monetary policy tightening in four decades. U.S. dynamism is a key reason why the global economy has some upside potential over the next two years.

Among emerging markets, India and Indonesia stand out for their strong performance. Buoyed by vibrant domestic demand, surging investment, and a dynamic services sector, India's economy is projected to grow by 6.7 percent per fiscal year, on average, through 2026. (South Asia is now the world's fastest-growing region.) For its part, Indonesia is expected to grow by 5.1 percent, on average, over the next two years, thanks largely to a rising middle class and prudent economic policies.

These economies prove that high growth rates can be sustained, even under difficult conditions. If others want to achieve similar success, and enhance their own long-term growth potential, they must enact policies that strengthen human capital, boost productivity, and encourage more women to enter the labor force. To this end, efficient and well-targeted public investment is critical.

In developing economies, public investment accounts for just a quarter of total investment, on average. Our research shows that scaling it up by just 1 percent of gross domestic product (GDP) can increase total GDP by more than 1.5 percent over the medium term and boost private investment by as much as 2 percent within roughly five years. The benefits are largest in countries with a track record of efficient public investment and, crucially, sufficient fiscal space to increase spending.

For some countries, especially small developing countries with populations of less than 1.5 million, this is a formidable challenge. Home to just 17 million people, small developing countries face climate-related natural disasters at a rate that is eight times higher, on average, than in other developing economies. Making matters worse, two-fifths of these countries are in, or at high risk of, debt distress.

But this does not mean that small-state governments cannot steer their economies onto a more stable, prosperous path. On the contrary, they have considerable room to mobilize more revenues from domestic sources, which offer a more reliable fiscal base than foreign flows. They can also create fiscal frameworks—including rainy-day funds—capable of coping with frequent natural disasters and other shocks, and improve the efficiency of public spending, especially on health, education, and infrastructure. International policy coordination and financial support can complement these efforts.

Policymakers have good reason to celebrate: the world economy has avoided recession, despite the steepest rise in global interest rates since the 1980s. But they must also recognize that, in much of the world, growth remains too slow to support progress on development and poverty reduction. Without stronger international cooperation and policies that advance shared prosperity, the global economy will remain stuck in the slow lane.

Source: World Bank

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Devin

Economic

Stocks

As the far right and leftist parties gain momentum ahead of France's surprise parliamentary election, investors are starting to contemplate the risk of a budget crisis at the heart of the euro zone.

Marine Le Pen's far-right National Rally party (RN) is leading in opinion polls ahead of the ballot called by President Emmanuel Macron for June 30 and July 7, albeit unlikely to win an absolute majority.

Although it has not yet announced its detailed programme, the RN has previously favoured lowering the retirement age, tax cuts and boosting spending.

That has exacerbated concerns about fiscal sustainability in the euro zone's second largest economy just weeks after France's high deficit led to a credit rating cut.

A newly formed leftist alliance meanwhile said on Friday it wanted to lower the retirement age and tie salaries to inflation, adding to expectations for higher spending under a new government. Polls show the leftist parties coming second behind the RN.

Investor reaction was blunt: the risk premium they demand to hold French government bonds over euro zone benchmark Germany rose to the highest since 2017 on Friday at 82 basis points, its biggest weekly jump since at least 2010, according to LSEG data.

On Monday it dropped to 75 bps as markets calmed, but was still over 25 bps higher than before the election announcement.

"The focus has shifted back to the scope for some kind of near term crisis," said Gordon Shannon, portfolio manager at TwentyFour Asset Management.

"You're pricing the risk that you have an event similar to the UK's mini budget," he said, referring to Britain's then-Prime Minister Liz Truss' mini-budget of unfunded tax cuts in 2022 that pummelled gilts and forced the Bank of England to step in to stabilise markets.

Finance Minister Bruno Le Maire, urging voters to back Macron's centrist candidates, warned on Friday of the risk of a financial crisis if either the far right or the left wins the election.

The cost of insuring France's debt against default jumped on Friday to its highest level since May 2020, while the spillover of rising borrowing costs has knocked banks.

Shares in the country's biggest three - BNP Paribas, Credit Agricole and Societe Generale - struggled to recover on Monday after losing between 11-15% last week, the most since March 2023's banking crisis.

But the European Central Bank's chief economist Philip Lane on Monday downplayed any need for the ECB to come to France's rescue by buying bonds, saying the market moves were not disorderly, a condition for ECB intervention.

ECB sources had earlier told Reuters policymakers had no plan to discuss emergency purchases of French bonds and thought it is for French politicians to reassure spooked investors.

The ECB's backstop tool to buy government bonds if warranted requires compliance with parameters like the EU's fiscal rules to limit budget deficits.

Euro zone reckoning?

Demonstrating how market ructions are already hitting funding plans, a French state-backed agency cancelled a bond sale and France's treasury plans to raise a smaller amount than usual at a bond auction this week.

Bond investors are often dubbed vigilantes by analysts for demanding higher returns from governments they perceive as fiscally reckless.

"We've already had a stress test in the UK with the mini budget and we had a bit last summer in the U.S. when Treasury yields rose sharply after the Treasury refunding announcement," said Guillermo Felices, global investment strategist at PGIM Fixed Income.

"We haven't had this yet in the euro zone."

The Institut Montaigne think tank has said the RN's programme for the 2022 parliamentary election would cost more than 100 billion euros -- suggesting a 3.5 percentage-point increase in France's budget deficit -- if fully enacted. That's much higher than estimates for Truss's tax cuts.

RN President Jordan Bardella said on Friday that the party would detail its platform in the coming days and how it would be financed. It has so far been vague about where it stands on fiscal responsibility, other than blaming the outgoing government for straining the public finances.

"In an extreme case, the risks could include a Liz-Truss-style blowout in yield spreads," Holger Schmieding, chief economist at private bank Berenberg, said earlier this week.

Britain's 10-year yield jumped over 100 bps in less than a week during its budget crisis.

There were some early signs that concern over France might spread in the euro zone.

Italy's closely-watched risk premium over Germany rose to the highest since February at 159 bps on Friday.

Italy last year posted the highest budget deficit-to-GDP ratio in the European Union, at 7.4% of output. Together with France, it is expected to face a European Union excessive deficit procedure requiring it to reduce its structural deficit.

The euro hit a 1-1/2-month low against the dollar on Friday and euro zone bank stocks fell 8% last week.

Others said it had yet to be seen how a potential government that included the RN would act in office. Italy's debt outperformed last year, helped by far-right Prime Minister Giorgia Meloni moderating her tone in office.

Iain Stealey, international chief investment officer for fixed income at JPMorgan Asset Management, said the RN's spending plans would be curbed by the EU's deficit rules.

"The market will also be a key force in keeping National Rally in check, with the party likely to take a more prudent fiscal stance ahead of the 2027 presidential election," he added.

Source: Reuters

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Alex

Economic

Indian Prime Minister Narendra Modi likes to hold back bad news from people until it doesn’t matter any more to his political prospects.

In 2019, his administration was accused of hiding a labor survey that, when it was finally released after his reelection, showed unemployment at a 45-year high. This year’s election, which saw him return with a diminished majority, has coincided with a long-awaited report on the plight of people who have work but are struggling to get by.

It’s impossible to make sense of India’s employment situation — or consumer demand — by only looking at the fifth of the labor force that holds regular jobs. The rest are either self-employed or work when they can find it.

About 110 million toil at 65 million tiny nonfarm jobs scattered across the country. Most of the labor comes from family members. But establishments that do hire outside staff paid employees less than 125,000 rupees ($1,500) a year, on average, according to an official survey conducted in the 12 months through September 2023. This is 1% less than what workers were making between April 2021 and March 2022, a period marked by a deadly second wave of Covid-19, followed by a gradual reopening of the economy.

The annual scorecard on unincorporated enterprises, released for the first time Friday, talks of a “robust” near-8% growth in the number of workers. But what is the quality of this employment? The data shows that of the 30 million employed by these small, non-agricultural firms for a wage, 27 million are engaged informally, without any social security. That’s an increase of 6 million since the pandemic in the number of people earning as little as $1,100 a year in rural areas, and a third more than that in urban centers.

Worse still, the compensation for informal labor in villages was practically unchanged between the two survey rounds. That was even as consumer prices for agricultural workers jumped 10%, mimicking the global surge in post-pandemic inflation. Including family and paid labor in rural and urban areas, each person is adding just about $1,700 in value in a year, a 2.6% increase from 2021-22. So why are so many Indians stuck in these low-productivity hovels where their incomes are insufficient to cope with prices?

The reason may be simple enough. The growth in gross domestic product, which at 8%-plus is the fastest among major economies, is clearly not creating enough employment. Surplus Indian labor is stranded in villages, somehow trying to cope with the double whammy of high cost of living and lack of better-paying formal jobs. Why Indians Aren’t Happy With 8% Economic Growth_1

Why Indians Aren’t Happy With 8% Economic Growth_1

This excess rural labor could be distorting the inflation picture, according to a recent study by ANZ Group Holdings Ltd. Despite weak rural demand, inflation in villages is 5.3%, whereas in cities it’s close to the central bank’s 4% target. Even inflation expectations are higher in villages. The puzzle may be partly explained by the missing train journeys — 100 million fewer every month than before the pandemic. Something is broken with the regular rural-to-urban migration pattern. From fuel to recreation, an artificially bloated consumer base and sluggish supply-chain adjustments could be “burdening” rural markets, say ANZ economists Dhiraj Nim and Sanjay Mathur.

It will be helpful for the central bank to know that people earning less than $4 a day for informal work in villages are witnessing no income growth. So it’s entirely possible, as the ANZ analysts explain, that these worker families switched to traditional fuel substitutes like cow-dung cakes, coal or charcoal when liquefied petroleum gas got more expensive because of the war in Ukraine. Reducing the price of cooking-gas cylinders — one such cut was announced by the government just before the polls — may do more to lower urban inflation than address rural price pressures. Those might respond better to targeted fiscal subsidies for job creation than higher-for-longer interest rates.

Playing politics with data can be dangerous. Analysts have been wondering why it was taking so long to get any information on how the more informal part of the economy has fared during and after the pandemic. Although very few of them openly raise their concerns, the disconnect between the rosy GDP numbers and weak consumer demand — growing at half the pace of overall output — has also been a worrying development for executives whose businesses rely on mass consumption.

None of this is a problem for the stock market. It is buoyed by visions of massive infrastructure creation and private capital expenditure in Modi’s third term. The savings of a small affluent class have poured into accounts with retail brokers. Zerodha, the largest among them, recently boasted that its customers hold 4.5 trillion rupees in assets, enough to buy the country’s largest carmaker if that’s what the savers wanted. Most of this stock-chasing money has accumulated since the pandemic. Investors have taken 500 billion rupees in profit and are sitting on unrealized gains of another 1 trillion rupees — and that’s just one broker’s numbers.

However, a nation of 1.4 billion people is ultimately powered by mass spending. That requires jobs and incomes at the bottom of the pyramid, not just the top. By stopping the ruling Bharatiya Janata Party well short of a parliamentary majority, the voters have sent a message. The stagnant wage of a worker at a mom-and-pop operation may be an uncomfortable detail in the equity market’s cheery story of rapid GDP growth, but it matters. Both to the economy, and Modi’s political longevity.

Source:Bloomberg

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Warren Takunda

Commodity

Oil prices were stable on Tuesday, as traders awaited signs of a hoped-for summer demand boost to prop up prices even as strong supply threatens to blunt gains.

Benchmark Brent crude futures were down 2 cents to $84.23 per barrel at 1231 GMT after climbing in the previous session. U.S. West Texas Intermediate crude futures , which also rose on Monday, were up 3 cents to $80.36 a barrel.

Both benchmarks gained around 2% on Monday, closing at their highest levels since April. Brent has clambered back from an early-June close of $77.52, though remains off its $90 peaks in mid-April.

"The oil market shifted its focus back to fundamentals, which have been soft for some time," said BoFA commodity and derivatives strategist Francisco Blanch in a note, adding that global crude oil inventories and refined product storage in the United States and Singapore, among other places, was higher.

Meanwhile, global oil demand growth slowed to 890,000 barrels per day year on year in the first quarter, and data suggests consumption growth likely slowed further in the second quarter, he said in the note.

But U.S. crude inventories are expected to have fallen by 2.3 million barrels in the week to June 14, according to analysts polled by Reuters.

"The critical data set this week, at least for us, will be the U.S. oil inventory data as it could confirm or refute the developing optimism that demand has started its ascent at the dawn of the summer driving season," Tamas Varga of oil broker PVM wrote in a note.

That's a rise on 2022 and close to a record high.

Some analysts remained bullish on the price impact of an extension by the OPEC+ group of supply cuts in the near term.

"The latest guidance provided by OPEC+, as well as their unchanged 2.25 million barrels per day demand growth outlook, signals a stagnation in oil supply growth for 2024 and an apparent downside risk to production in 2025," said Patricio Valdivieso, Rystad Energy vice president and global lead of crude trading analysis.

"Under these conditions — and the disconnect between the OPEC+ demand outlook and all other agencies — it is hard to remain fully bearish when global oil supply growth appears decimated," he added.

In China, oil refinery output in May slipped 1.8% from year-ago levels, statistics bureau data showed on Monday, as refiners undertook planned maintenance and processing margins were pressured by rising crude costs.

Investors were also looking out for further clues on interest rates, and how U.S. demand will develop, as several U.S. Federal Reserve representatives are scheduled to speak later on Tuesday.

Source: Reuters

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Goldman Sachs

Economic

Commodity

The world’s demand for oil is expected by Goldman Sachs Research to grow for the next decade. Lackluster electric vehicle sales and rising incomes around the globe are increasing the appetite for energy supplies that will be met primarily with more fossil fuels.

While some prominent forecasters have predicted oil demand will peak by 2030, our researchers expect oil usage will increase through 2034. That’s in part because of demand for oil from emerging markets in Asia and demand for petrochemicals, according to a report by Goldman Sachs Research.

“We think peak demand is another decade away, and more importantly, after the decade it takes to peak, it plateaus, rather than sharply declines, for another few years,” write Nikhil Bhandari, co-head of Asia-Pacific Natural Resources and Clean Energy Research, and analyst Amber Cai in the team’s report. Peak Oil Demand Is Still A Decade Away_1

Peak Oil Demand Is Still A Decade Away_1

Goldman Sachs Research forecasts, in its base case, oil demand to peak at 110 million barrels a day by 2034. In a scenario with slower EV adoption, oil demand could keep increasing towards 113 million barrels a day by 2040.

When will demand for gasoline peak?

The thirst for oil will be driven by increased demand for petrochemicals and specialized refined products such as jet fuel, rather than gasoline for automobiles. Petrochemicals are produced from petroleum or natural gas and are used in everything from plastics to soaps.

“Among oil products, we expect gasoline demand to peak around 2028, but petrochemical demand growth could more than offset the gasoline demand decline through 2040,” Bhandari and Cai write. Peak Oil Demand Is Still A Decade Away_2

Peak Oil Demand Is Still A Decade Away_2

Once oil demand peaks in about 2034, it will probably begin a moderate decline with a CAGR of 0.3% till 2040. Our researchers predict that China will see growing demand for oil until late 2020s.The longer horizon to peak oil demand in part reflects a slower adoption rate for EVs. European countries have cut subsidies, and price competition has put pressure on automaker profits, slowing EV investment on the continent. Technical issues, affordability, charging infrastructure, resale value, and policy uncertainty around elections in the US and Europe are all contributing to sluggish EV sales.“The slow adoption makes a difference, not just in terms of the year when it peaks, but the level where we will be in year 2040,” Bhandari and Cai write.

The impact of slowing EV penetration

Even if it happens more slowly, the shift to EVs will eventually erode global demand for gasoline. India, for example, is rapidly electrifying its two-wheelers, which account for about 50% of the country’s gasoline consumption. Peak Oil Demand Is Still A Decade Away_3

Peak Oil Demand Is Still A Decade Away_3

“The threat to gasoline demand, as the global passenger fleet continues to expand, mainly comes from EVs reducing the fossil fuel-usage intensity of the fleet,” according to the report.

EV usage, in our analysts’ base case, will in 2028 have expanded to the point that it’s expected to offset the incremental demand for gasoline from the world’s still-growing fleet of passenger cars. However, appetite for other fuels, such as diesel, will continue to rise, peaking in about 2034, because medium- and heavy-duty trucks are more difficult to electrify than passenger vehicles. Right now batteries are simply too big, too heavy, and too expensive to justify heavy-duty truck fleet conversions.

In the late 2030s, however, hydrogen may begin competing with diesel for large fleet vehicles, according to Goldman Sachs Research, which will contribute to waning diesel demand.

Jet fuel will likely take longer to peak, with demand growing towards 2040. As average global incomes continue to rise, so will demand for air travel — growth that will more than offset fuel savings from more efficient aircraft engines. China will account for more than half of the increased demand as its GDP per capita growth rises and it becomes a high-income economy. Towards 2040, our researchers have built in more disruptions to jet fuel demand, such as biofuels, fuel efficiency, and other decarbonization efforts.

Even if gasoline peaks as forecast around 2028, petrochemical demand growth could more than offset the decline in gasoline demand through 2040. As the world’s GDP per capita rises, consumers will want more products such as plastics that are derived from oil, increasing the need for petrochemical production.

In the meantime, as capital expenditures for oil production slows, that may lead to supply shortages.

“While peak oil demand is still a decade away, capital is slowing for the production of crude oil and oil products, contributing to constrained supply in the medium term,” Bhandari and Cai write.

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Samantha Luan

Economic

Commodity

The Biden administration is ready to release more oil from its strategic stockpile to halt any jump in petrol prices this summer, as the White House battles to contain inflation ahead of the November election.

Amos Hochstein, President Joe Biden’s closest adviser on energy, said that prices at the pump were “still too high for many Americans” and he would like to see them “cut down a little bit further”.

“We will do everything we can to make sure that the market is supplied well enough to ensure as low price as possible for American consumers,” Hochstein told the Financial Times.

“I think that we have enough in the SPR if it’s necessary,” he added, referring to the country’s Strategic Petroleum Reserve.

Hochstein’s comments come as Biden tries to overcome voter anxiety about his handling of the economy with less than five months to go before the election.

The Biden administration has pledged measures including curbs on healthcare costs and banking fees in a bid to reduce inflation, which has fallen by about 60 per cent since hitting multi-decade highs in 2022.

Any decision in the coming months to draw more barrels from the SPR — which Biden has tapped more than any of his predecessors — would anger Republicans who have accused him of “political abuse and misuse” of the stockpile.

US petrol prices averaged $3.45 a gallon on Sunday, according to the AAA motoring group, down slightly from a year ago but still more than 50 per cent higher than when Biden succeeded Donald Trump as president in 2021.

Despite his limited ability to influence prices, many motorists blame the Democratic president for the squeeze at the pump.

“I don’t like Biden,” said David Gonzales Broche, an Uber driver in Las Vegas, Nevada, where prices averaged $4.05 a gallon on Sunday. “For gasoline I’m paying almost $5 a gallon. Before, it was $2-something — when we had Trump.”

Joe Biden Ready to Reopen US Oil Stockpile If Petrol Prices Surge Again_1

The former president has used petrol prices as an attack line against Biden in his campaign for the White House, claiming the administration’s clean energy and climate polices have constrained US oil output.

“We’re going to drill, baby drill,” Trump told supporters at a rally in Las Vegas last weekend. “We’re going to bring down your energy costs.”

The US under Biden has hit new record high levels of oil and gas output, and is exporting more than when Trump was president.

The SPR was set up almost half a century ago as a buffer against jumps in oil prices in times of supply disruption. Biden announced releases from the reserve in late 2021 and again in 2022 as petrol prices rose following Russia’s full-scale invasion of Ukraine. Joe Biden Ready to Reopen US Oil Stockpile If Petrol Prices Surge Again_2

Joe Biden Ready to Reopen US Oil Stockpile If Petrol Prices Surge Again_2

Opec+ this month extended oil supply cuts in a bid to bolster prices. Brent crude settled at $82.62 a barrel on Friday, having risen 7 per cent in the past two weeks. Goldman Sachs expects the benchmark to reach $86 a barrel next quarter.

“Any president facing a tough re-election, especially in a fragile economy, is going to be anxious about the risk of a gasoline price spike,” said Bob McNally, a former energy adviser to George W Bush and head of consultancy Rapidan Energy.

In a letter sent last month to energy secretary Jennifer Granholm, senior Republican politicians called on the administration to “ensure that the SPR is not abused for political purposes in this election year” and described Biden’s SPR release in 2022 as “a transparent attempt to influence the midterm elections”.

The administration has gradually refilled the SPR since it was drained under Biden to its lowest levels since 1983, arguing it has done so at a good rate of return for taxpayers by selling the oil at higher market prices and buying barrels back at lower levels.

Hochstein said the administration would keep replenishing the reserve until the oil was needed again.

“We will continue to purchase into next year, until we think that the SPR has the volume that it needs again to serve its original purpose of energy security,” he said.