Is Biden Right About Oil Companies?
 

President Joe Biden on Wednesday called on U.S. oil refiners to produce more gasoline and diesel, saying their profits have tripled during a time of war between Russia and Ukraine as Americans struggle with record high prices at the pump.

As Biden sees it, refineries are capitalizing on the uncertainties caused by “a time of war.”

The president has harshly criticized what he views as profiteering amid a global crisis that could potentially push Europe and other parts of the world into a recession, saying after a speech Friday that ExxonMobil “made more money than God this year.”

“There is no question that (Russian President) Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing,” Biden's letter says. “But amid a war that has raised gasoline prices more than $1.70 per gallon, historically high refinery profit margins are worsening that pain.”

The president sent the letter to Marathon Petroleum, Valero Energy, ExxonMobil, Phillips 66, Chevron, BP and Shell.

He also has directed Energy Secretary Jennifer Granholm to convene an emergency meeting and consult with the National Petroleum Council, a federal advisory group that is drawn from the energy sector.

https://www.detroitnews.com/story/bu...ts/7632545001/

In short, Biden is doubling down on his messaging regarding "Putin's War" driving inflation, including massive increases in the consumer cost of gasoline.

So, is he right? Or is this messaging intended to take some heat off the President's political party during an election cycle?

Well, naturally you'd expect the industry mouth-pieces to disagree with Biden on this. So, let's go ahead and check that box.

The American Petroleum Institute, which represents the industry, said in a statement that capacity has been diminished as the Biden administration has sought to move away from fossil fuels as part of its climate change agenda.

“While we appreciate the opportunity to open increased dialogue with the White House, the administration’s misguided policy agenda shifting away from domestic oil and natural gas has compounded inflationary pressures and added headwinds to companies’ daily efforts to meet growing energy needs while reducing emissions," API CEO Mike Sommers said in a statement.

One item to consider in all this is when inflationary pressures began, and why? Well, we consumers had some money in our pockets once governments started loosening up on COVID restrictions.

Gas prices nationwide are averaging roughly $5 a gallon, an economic burden for many Americans and a political threat for the president's fellow Democrats going into the midterm elections. Broader inflation began to rise last year as the U.S. economy recovered from the coronavirus pandemic, but it accelerated in recent months as energy and food prices climbed after Russia invaded Ukraine in February and disrupted global commodity markets.

So, the US economy was already beset by inflationary pressures long before Russia invaded Ukraine. Certainly, the invasion didn't help matters at all. Quite the opposite. But is the Russian invasion a driver of higher prices at the pump? Well, according to Politifact:

It’s true that U.S. dependence on Russian oil imports has been small. About 8% of all petroleum products imported into the U.S. have come from Russia — and 3%, not 1%, are crude oil.

Sure, oil is part of a global market and is influenced by supply and demand globally. But at least here in the US market, any decrease in supply based on a reduction of imports from Russia has had a marginal impact on domestic supply.

Biden's letter suggests that the oil companies have refused to increase refining capacity, which is keeping prices at the pump artificially high. From the same AP/Detroit News article:

There may be limits on how much more capacity can be added. The U.S. Energy Information Administration on Friday released estimates that “refinery utilization will reach a monthly average level of 96 percent twice this summer, near the upper limits of what refiners can consistently maintain.”

In fact, it was only a year ago that US refining capacity had dropped for reasons related to the pandemic. From Reuters last year:

U.S. refining capacity last year fell 4.5% to 18.13 million barrels per day (bpd) from a record 18.98 million bpd a year earlier, the U.S. government reported on Friday, reflecting weak demand for motor fuels during the COVID-19 pandemic.

U.S. refiners last year suffered deep financial losses and closed five facilities as the pandemic slashed fuel sales. Average U.S. gasoline consumption fell 13% last year with gasoline and diesel prices hitting a four-year low, according to government figures.

Five refineries, with a combined capacity of 801,146 bpd, permanently shut following the 1.3 million-bpd drop in gasoline consumption as businesses closed and consumers stayed home. The closings drove capacity down to a level below 2016's 18.3 million bpd.

The reduction in refinery capacity is not just a US issue. Also from Reuters last year:

Refiners worldwide are struggling to meet global demand for diesel and gasoline, exacerbating high prices and aggravating shortages from big consumers like the United States and Brazil to smaller countries like war-ravaged Ukraine and Sri Lanka.

World fuel demand has rebounded to pre-pandemic levels, but the combination of pandemic closures, sanctions on Russia and export quotas in China are straining refiners' ability to meet demand. China and Russia are two of the three biggest refining countries, after the United States. All three are below peak processing levels, undermining the effort by world governments to lower prices by releasing crude oil from reserves.

So Russia and China have both reduced available supply, while China has actually increased refinery capacity. Interesting... I guess China doesn't want to participate in the rest of the world's supply issues. What do they know about increasing domestic oil supply and refinery capacity that we don't? Probably not much, except that China doesn't have to worry about mustering the political will and spending political capital to increase domestic supply.

Are local producers slowing down on local oil production? No, in fact increasing demand is prompting them to accelerate domestic production plans that were put in place last year, as Politico pointed out earlier this year:

Exxon Mobil and Chevron are both boosting oil production at the mammoth Permian Basin field in West Texas and New Mexico, strategies that both oil majors laid out last year but that have taken on new urgency because of the surge in oil prices to their highest level in 14 years.


The same Politico article points out that: The Biden administration is reportedly reaching out to Saudi Arabia, the world’s leading exporter, as well as Venezuela, whose government has also been sanctioned, to help fill any oil shortfalls from the shut-off of Russia’s shipments. But executives say that high international prices have already given producers all the incentive they need to boost output and that no one is holding back.

So, blocking Russian oil exports have certainly had an impact on international supply, but domestic suppliers have already been ramping up oil production. There's an open question if OPEC nations can increase output to offset the decreased supply from Russia.

Still, James Burkhard, head of oil markets for IHS Markit, said the Biden administration was likely looking for the backing of OPEC, whose members would need to boost output if countries were to try to ban Russian supplies.

“It is likely that there is the capacity for this, and OPEC might find themselves inclined to back the step if the U.S. can provide the right incentives,” he said.

But what might those incentives look like? The Saudis are not pleased with the US right now for a couple of reasons, including our reaction to the assassination of Jamal Khashoggi, and also our re-enaging with Iran. The "right incentives" might be pretty distasteful.

This leads us back to domestic supply and prospecting? Don't forget that one of Biden's first actions was to kill the Keystone Pipeline. He also canceled oil drilling leases in Alaska and the Gulf of Mexico. Seems like one place that Biden needs to look for blame includes the mirror.

On balance, there are a number of causes for inflation of prices at the pump. Laying the blame on refiners and ignoring other significant factors certainly makes his recent letter to US oil companies look a lot more like election-year politics.

It's impossible to apportion the relative share of the various factors responsible for gas price hikes, but it's happening all over the world. I understand that conservatives and their oil company patrons want to pin it all on Biden and Biden wants to blame it on them. Typical DC blame-shifting and responsibility avoidance on behalf of all parties involved.

And yet, we could fix this rather quickly if we wanted to...or had the political will to do so.

No, we couldn't. This is driven by a mismatch between the global oil supply and pent-up demand coming out of Covid. The oil industry throttled less productive and more costly oil fields (e.g., North Dakota's Bakken oil field) during Covid and now Putin has lost western expertise to run his fields while Saudi Arabia doesn't want to play nice because of American criticism of the Khashoggi murder. Neither the President nor the Congress has the capability to dictate world oil prices. Never had, never will.

Yes, we could.

First, Putin's oil is still getting to market, and the Western sanctions have only reduced those exports by a fraction. India and China remain great customers for Russian oil exports, and there are other customers as well.

Second, oil production from less efficient fields has always been part of the oil industry's changing operations. There are also typically other geographic areas to turn to as opportunities to ramp up production. But in the face of tightening supply, we cut off our nose to spite our face by canceling auctions for potentially oil-rich areas in the Gulf of Mexico and off the Alaskan coast. This is significant because:

The decision to cancel lease sales for two regions in the Gulf of Mexico and one off the coast of Alaska leaves oil-and-gas companies facing a blackout period of unknown length for access to new drilling spots in valuable offshore acreage.

A five-year schedule for offshore lease sales expires at the end of next month, and the Interior Department has yet to propose a new one. Canceling the pending sales with no new schedule yet proposed could mean the industry now faces years between successful federal offshore auctions.

“The lack of new lease sales will lower future supplies, which will keep energy prices high and drive inflation for years to come,” Marty Durbin, president of the energy arm of the U.S. Chamber of Commerce, said in a statement.

We also have the environmental lobby with its single-minded pursuit of crippling domestic oil production, who filed suit this week:

Three environmental law groups have sued the Biden administration in an attempt to block more than 3,500 permit applications from energy companies to drill for oil and gas on public lands.

The environmental groups filed the lawsuit in the District Court of Washington, DC, against the Bureau of Land Management, saying the permit approvals in Wyoming and New Mexico violated several federal laws, including the Endangered Species Act.

This comes after the Biden administration did signal it would resume leasing public lands for drilling, which really cheesed-off his political left.


Prior to this week's suit from the Environmentalist, there was already a slow down on approval for new drilling leases, because the administration was blocked from using the cost of climate change in federal rule-making.

The ruling has prompted delays and uncertainty across at least four federal agencies that were using higher cost estimates of greenhouse gas emissions in decisions, including plans to restrict methane emissions from natural gas drilling and a grant program for transit projects. It also continues a contentious legal battle that has hampered Biden’s plans to address climate change.

One of the most significant and unintended outcomes of the ruling is the government’s pause on new oil and gas leases and permits to drill on federal lands and waters. Lease sales in states across the U.S. West, including Montana and Wyoming, are now delayed.

No one is suggesting that the US can "dictate the world's oil prices". But we can't seem to get out of our own way when it comes to decreasing domestic supply. Needless to say, these actions, while they have an impact in the long term, have an impact on prices in the near term. If we were to take concerted action RIGHT NOW to increase domestic supply, we'd have a relatively immediate impact on near-term oil prices even though such efforts would not have an immediate payoff. Oil prices today are based on future supply prospects.

Welcome your input here.

BTW re energy the US is just as confused as most European countries.

Oil is a traded commodity, like stocks, gold and wheat. The price is driven by expectations for the future. You think it will go up, so you buy, driving up the price. You think it will go down, so you sell, driving down the price.

If a president said, "I'm a friend of oil and approve the keystone pipeline and am approving all these oil leases on federal land", even though that would not affect the supply for a while, the price internationally would immediately collapse. Conversely, if a president says "oil is bad and I want to make it harder to produce, and get people into electric cars", the price of oil would shoot up, even though his pending actions would have no direct effect on the supply for a while.

That's why gas was much cheaper under Trump and more expensive under Biden.

The one caveat is if supply and demand really does kick in. But that doesn't seem to be the problem right now. I'm not seeing any lines. At least, not yet.

I did just get my 250 gallon tank filled, not because I believe the price is necessarily going up but, more importantly, so I will have plenty of fuel if we do see lines again. And for our lifestyle, the heaviest user of that tank is my ZT mower, that uses 5 gallons a week to mow our lawn. i.e. it will last us a while.

You left out geopolitical games.

According to info from the US Gov't EIA, supply is about on par with current demand, despite the protestations in Biden's recent letter to oil company CEO's. That leveling is a fairly recent development, however: late April or early May 2022. The data predicts a spike in demand during the summer, which is typical.

Putin's fuel and food strategy is commerce disruption extortion to facilitate the Ukrain land grab. How well did appeasement work ca 85 years ago?
Basically, we are here because of a pandemic and Putin's land grab.

That's unlikely the primary driver. The price of gas at the pump was trending up long before the Ukraine invasion. For example, the average US pump price in April of 2020 was $1.961. Just one year later, long before the Ukraine invasion, the average pump price was $3.07, over one dollar higher.

So, what was driving those prices up a full year or more before the invasion?

After the Biden and Bezos war of words, gas prices really are coming back down to earth

https://finance.yahoo.com/news/biden...151129176.html

Sorry, Faux "News" (and MAGAMorons)! You won't have this issue to whine about just before the elections.

Patrick De Haan, an analyst with GasBuddy, said Wednesday he expects most stations will see drops of one to two cents per gallon every couple of days for the next two to three weeks, possibly longer. If “things do hold steady,” he says, “the national average could drop to $4-$4.25/gal by mid-August.”

I'm sure that $4.25/gallon gas will make everyone so very happy...until they remember it was under $2.00/gallon not long ago. :eek:

Seriously, any drop in gas prices between now and August will be demand-driven, not supply-driven. If the supply issues aren't addressed, we'll be right back here again next summer.

Gas prices: Thousands of stations in Gulf Coast region reportedly below $4
The number of gas stations under the $4 mark could double or triple in coming weeks, expert says

https://www.foxbusiness.com/lifestyl...ly-below-4.amp

Even the “News” for MAGAMorons is reporting it now.

BP boosts dividend after profit hits 14-year high

https://finance.yahoo.com/news/bp-re...060735663.html

No doubt the Repubes will benefit greatly monetarily from this. Off the backs of hard-working citizens. It never ends. Sigh.

I am wondering why no one is questioning the lack of effort on the part of Saudi Arabia to increase oil production. After all, aren't they our BFF?

Now that oil companies revenues and insane profits have become common knowledge, there will be pressure on them. Diesel is already at $5.25 a gallon here in Reno, it was around $6.25 a couple of weeks ago.

Have seen $3.87/gal for auto fuel here. An independent. Main brand dealers about .40 higher or so.

Another example of this poster's penchant for blatant dishonesty, see bolded. Gas went sub $2.00 during the worst of the Covid pandemic. Everything was shuttered and people were staying home. Demand was in the gutter.

You are simply dishonest, Mike. smh

Moreover, he fails to attribute increases in gas prices to Trump demanding Saudi Arabia reduce production back in 2020.

Trump told Saudi Crown Prince Mohammed bin Salman that unless the Organization of the Petroleum Exporting Countries (OPEC) started cutting oil production, he would be powerless to stop lawmakers from passing legislation to withdraw U.S. troops from the kingdom, four sources familiar with the matter told Reuters.

The threat to upend a 75-year strategic alliance, which has not been previously reported, was central to the U.S. pressure campaign that led to a landmark global deal to slash oil supply as demand collapsed in the coronavirus pandemic.

I just saw this post. Gawd you're clueless.

That agreement was against the backdrop of the Saudi's starting an oil price war with Russia, and the US domestic oil industry was in the crossfire. In short, it was an effort to support US domestic oil production, not throttle it. It also got the Saudi's and Russians back to the negotiating table to end the price war.

So, Trump's intervention in the energy market is a good thing even if the results are bad (increasing oil prices) while Biden's (e.g., opening up the Strategic Petroleum Reserve) are a bad thing even if the results are good (decreasing oil prices).

If that's what you think, I can't help you.

Of course, it depends on the intervention, the goal, and if the intervention achieves to goal.

Biden's goal in releasing oil from the reserves was to have a near-term impact on gasoline prices. It had little to no impact on futures prices. Futures prices did take a dip in August, driven by reduced demand as China had another COVID lockdown. The fact that folks are driving less has helped bring down gas prices.

Back in April 2020 when Trump was involved in negotiations with Riyadh, there were days when the spot price of domestic crude was negative: producers were paying to have the product stored as they ran out of holding capacity, and crude was selling slower than it was being produced. That trend was threatening the domestic oil industry. A production pullback stabilized both domestic and global crude prices. So, yeah, that one worked.

Oil giant Saudi Aramco makes historic $161B profit in 2022: https://www.detroitnews.com/story/bu...e/69999121007/

The Saudis ought to be sending Biden a great big thank-you card for this.

In the meantime, market conditions may force Biden to retreat on his earlier campaign pledge of "no more drilling on Federal lands. News reports describe pending approval of an Alaskan North Slope drilling project.

Better late to the party than never. But what a waste of time and money by this administration to get to this point.

A Fresh, Foul Aroma Surrounds the Ties Between Jared Kushner, Donald Trump, and MBS
https://www.esquire.com/news-politic...-relationship/

Whell, as usual when you accuse President of economic mismanagement, it usually something else (I suspect its the barrage of Trump & Fox lawsuits). As you continue to blame Biden for not expanding drilling which may or may not pay out in 10 or more years, is also dependent on how aggressively the oil companies want to pursue new drilling opportunities, here is one of the reasons why our gasoline prices continue to remain high. Very simply if a manufacturer can maintain a high level of demand by choking supply and garner higher profits, why would they be dumb enough to increase supply and bring prices down? Especially after their reduced revenues during the pandemic?

https://www.forbes.com/advisor/inves...tion%20Agency.

In this market, energy producers balance risk/reward on the head of a pin. On one hand, demand is there, especially with China set to come out of COVID lockdown mode. On the other hand, the cost to bring new production capacity is high: environmental review via NEPA, permitting, regulatory review and approval can take years with no guarantee or success (look at the fiascos of Anwar and Keystone just to name a couple).

Also, for reasons similar to the above, we're currently at or near maximum refining capacity. We've historically exported unrefined oil to countries that have refining capacity. If we want any of that refined product back in the US, we transport it out, have it refined, and then import it back in. If we want to keep it local, producers need to add the oil to inventory, and maintaining inventory has its own costs.

We need to increase both refining capacity and supply, and we keep shooting ourselves in the foot, seemingly able to do neither very well.

Who is the we? Aren't they private companies, the epitome of Republican capitalism?

Its already clear that oil producing countries have no desire to increase supply. The US alone cannot do it since we are faced with future decrease in consumption of oil for both power generation and ICE powered vehicles. Most of the new power generation is solar and the car manufacturers are quickly migrating to EV technology. One of the iconic muscle cars built in the US since the 60's, The Dodge Charger is going EV next year, Mustang is already Mach-E with Camaro soon to follow. I am betting that within the next decade, most local delivery trucks, buses and vans (if not the semis) will be electric. So demand for oil is going to plummet.

So where is the increase in demand? Without that, supply cannot increase.

PS: Last I read, our refineries are still operating below capacity.

You really aren't that naive, are you?

Here's a bit of info for you: https://www.eia.gov/tools/faqs/faq.php?id=29&t=6

As of January 1, 2022, there were 130 operable petroleum refineries in the United States.

The newest refinery in the United States is the Texas International Terminals 45,000 b/cd refinery in Channelview, Texas, which was operable on January 1, 2022, but actually started operating in February, 2022.

However, the newest refinery with significant downstream unit capacity is Marathon's facility in Garyville, Louisiana. That facility came online in 1977 with an initial atmospheric distillation unit capacity of 200,000 b/cd, and as of January 1, 2022, it had a capacity of 585,000 b/cd.

Capitalism isn't "Republican". It is the most efficient method for converting capital, however. Since most energy producers are public companies, they also have shareholders to answer to.

I've written about this before, so I'll point you to this article:

Chevron CEO Mike Wirth does not expect another oil refinery to be built in the United States ever again, due to federal government policies. The last significant refinery built in the United States was in 1976. (A small refinery came online in 2020 in North Dakota). Over the last two years, due to reduced demand from the pandemic and Presidnt Biden’s stated policy to reduce the demand for petroleum products, U.S. refineries have been shut down or repurposed to become biofuel refineries. In a business where investments have a payout period of a decade or more, it is unlikely for investment to be spent on policies where the demand is to be reduced. Wirth stated rhetorically, “How do you go to your board, how do you go to your shareholders and say ‘we’re going to spend billions of dollars on new capacity in a market that is, you know, the policy is taking you in the other direction.”

That's the crux of it. You're not going to get additional domestic refining capacity unless a lot of things change. Those things include letting the market decide when to move away from petroleum and toward alternative fuels, making environmental regulations more realistic for the refining industry, and public policy that encourages energy sources from ALL alternatives rather than singling out and making the production of oil and petroleum products more challenging, while subsidizing other energy sources.

^^I already implied that in my previous post, no new refineries are going to be built in the US, certainly not in the next decade. As for oil companies carping about environmental restrictions, what is new? As a Chem E, I do not know what the middle ground is, but in general I will say that Chemical companies are not to be trusted when it comes to protecting the environment. There are way too many loopholes and lobbyists that can get waivers locally. My advisor used to say that the only solution to pollution is "don't do it".

In my opinion, nuclear energy is a hell of a lot easier than dealing with fossil fuels. But we as a country are addicted to fossil fuels.

Petrofuels still have their appropriate applications where direct electrical power isn't practical or efficient.
It's not just energy addiction, it's also petroleum derivatives for chemicals and plastics making petro a global industry in the broadest sense, I expect an additional tech, rather than a total conversion from petro to electric in the foreseeable future.

Agreed and I am not by any means calling for a total boycott of petrofuels. My wife worked for Chevron and best friend for AMOCO.

My hope is that personal transportation and delivery vehicles & buses in urban areas will migrate to EV technology over time and new power plants will be solar or other renewables, solar being the easiest get up and going.

Agreed, of course!