Is Biden Right About Oil Companies?

[whell]

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.

[finnbow]

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.

[whell]

Originally Posted by finnbow

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.

[finnbow]

Originally Posted by whell

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.

[whell]

Originally Posted by finnbow

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.

[Dondilion]

Originally Posted by whell

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.

[Not Insane]

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.

[Dondilion]

Originally Posted by Not Insane

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.

[whell]

Originally Posted by Not Insane

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.

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.

[Pio1980]

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.