President Biden should give Big Oil a bailout

White House Chief of Staff Ron Klain has taken to tweeting the price of a gallon of gasoline on a daily basis, a habit that’s convenient for him as long as it continues its steady decline. The idea that President Joe Biden’s administration is somehow responsible for this decrease is wrong, of course, but the White House certainly took the blame when prices rose, so fair is fair if it wants to take the credit as they fall.
At the same time, the administration should keep in mind that, paradoxically, one of the biggest risks to the continued supply of oil is fear that prices may crash. To insure the economy against future price spikes, the administration needs to encourage investment in oil production — and so it should try to offer the industry insurance against the risk of a price crash. In other words: Biden should promise to bail out the oil industry.
Consider the main tool the Biden administration has used to alleviate pain at the pump — the Strategic Petroleum Reserve. The Treasury Department estimates that the administration’s historically large releases have reduced the price of gasoline by between 17 and 42 cents per gallon.
In March 2020, when oil was cheap, Donald Trump’s administration proposed purchasing enough oil to completely fill up the SPR. Democrats rejected the idea, with Senate Majority Leader Chuck Schumer congratulating negotiators for having “eliminated a $3 billion bailout for big oil.”
Had Trump gotten his way, Biden’s SPR releases would have been slightly larger and more potent, and gasoline prices would now be a bit cheaper. But beyond that, a partial bailout of the oil industry would have made investing in new production when prices rose last year less risky, and companies might have done it faster.
Fast forward to 2022, and the Democratic Party realises that surging gasoline prices are political poison. And now that Democrats have passed the largest investment in zero-carbon energy in the world, they can’t afford to be complacent about falling gasoline prices. Democrats need to remember how bad things got when prices spiked, and recognise that the opposition to bailouts was a tactical and strategic error.
Some history: Oil industry figures remain scarred by the oil price war of 2014-2015, when Opec got tired of facing competition from US shale and deliberately drove down the price of oil to the point where North American shale would be uneconomical. Investors lost tons of money. Production rebounded over subsequent years, only to crash again during the pandemic — when investors, again, lost tons of money. That’s why, by February 2022, major shale players were saying that they wouldn’t make major investments even if oil reached $200 a barrel.
Thankfully for the US economy, that was an overstatement. According to the Energy Information Administration, US oil output for 2022 is tracking to be higher than in any year except 2019.

—Bloomberg