Biden blasts oil companies over gas prices: Correction
Corrects WTI close in the fourth paragraph.
US president Joe Biden today criticized oil and gas companies for reaping "significant profits off higher energy prices" as he again asked the Federal Trade Commission (FTC) to investigate if there is any price manipulation in gasoline markets.
"The two largest oil and gas companies in the US, as measured by market capitalization, are on track to nearly double their net income over 2019, the last full year before the pandemic" and are spending the profits on stock buybacks and dividends, Biden wrote in a letter to FTC chairman Lina Khan. "I do not accept hard-working Americans paying more for gas because of anti-competitive or otherwise potentially illegal conduct."
The White House asked the FTC, the US government's primary anti-trust regulator, in July to investigate if there was any manipulation in oil and gasoline markets, citing a divergent trend in crude and gasoline prices. To date, the commission's response has been to direct staff to increase oversight of mergers in the energy industry. But Biden said the FTC should act immediately to review "mounting evidence of anti-consumer behavior by oil and gas companies."
Focus on rack-to-retail differences
US retail gasoline prices averaged $3.40/USG in the week ended 15 November, up by 43pc since Biden took office, according to Energy Information Administration (EIA) data. The WTI month-ahead crude futures over the same period increased by 52pc, settling at $80.76/bl yesterday. The rapid rise in prices as demand and economic growth recovered from last year's Covid-19 pandemic lows has given Biden's Republican opponents talking points to criticize what they say is an anti-oil agenda as the White House has unrolled ambitious decarbonization plans.
In addition to blasting Opec+ members, and, now, US oil companies, the White House has also highlighted what it terms an unusual lag between the gasoline wholesale rack and pump prices. "In the last month, the price of unfinished gasoline is down more than 5pc while gas prices at the pump are up 3pc in the same period," Biden's letter said.
US refiners group American Fuel and Petrochemical Manufacturers (AFPM) blamed the administration for "shutting down pipelines and putting future production off limits," as well as the continued enforcement of Renewable Fuel Standard ethanol blending rules.
"Prices are determined by competitive firms operating in an environment of supply and demand," AFPM senior vice president Derrick Morgan said. "The administration is blaming others when it ought to take a sober look at its own energy policy."
In search of a culprit
Today's letter represents a significant shift in framing the issue of rising gasoline prices for the Biden White House, which has until now mostly directed criticism at Opec+ for not adding supply to the market fast enough.
A group of Democratic senators asked Biden last week to consider releasing oil from the Strategic Petroleum Reserve and reimposing a ban on crude exports that was lifted in 2015. The White House has not disclosed its thinking on either proposal, but today's letter suggests that the putative FTC investigation remains its primary focus.
Criticism of oil companies over high gasoline prices is a familiar US political fallback, similar to blaming Opec. US lawmakers during the long run-up in oil prices in the 2000s grilled oil executives at congressional hearings to explain record high profits while consumers were paying more at the pump.
"Rather than launching investigations on markets that are regulated and closely monitored on a daily basis or pleading with OPEC to increase supply, we should be encouraging the safe and responsible development of American-made oil and natural gas," industry group American Petroleum Institute senior vice president Frank Macchiarola said in response to Biden's letter.
ExxonMobil and Chevron, the two largest US oil companies by market capitalization, reported profits of $6.75bn and $6.1bn for the third quarter, respectively — up from $3.2bn and $2.6bn in the third quarter of 2019. ExxonMobil plans to resume share buy-backs next year for the first time since 2016, and has raised its dividend for the first time in more than two years. After posting record free cash flow in the third quarter, Chevron plans $750mn in share buy-backs in the fourth quarter.
Most US producers, under pressure from investors, are in no rush to use windfalls from surging oil prices to ramp up output. The EIA expects the 2021 crude output to fall by 1.3pc to 11.1mn b/d before recovering to 11.9mn b/d in 2022 — still below the record high 12.29mn b/d set in 2019, before restrictions related to the Covid-19 pandemic slashed global demand and prompted a pullback in US drilling.
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