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.