Biden seizes on high oil profits ahead of the midterms
The Biden administration is seizing on huge earnings calls from oil companies as it seeks to give voters a response to relatively high gasoline prices ahead of next week’s midterms.
President Biden has repeatedly sought to place blame on the industry for the high prices, but has ramped up its rhetoric in the wake of massive earnings.
And while analysts say that large parts of the price are set by the global oil market, not by individual companies, the optics of massive profits while Americans struggle with inflation gives the administration something to cling to.
In total, seven of the largest oil and gas companies combined raked in nearly $70 billion in third-quarter profits, according to recent earnings reports.
“If these companies were taking average profits on refining, instead of the profits they’re making today, gas prices would come down around 50 cents,” Biden tweeted Tuesday.
BP on Tuesday reported $8.2 billion in third-quarter profits, up from $3.3 billion during the same period last year. The British oil giant announced it would boost its stock buybacks to a total of $8.5 billion this year and pay around $800 million in new windfall taxes enacted by the U.K.
Last week, ExxonMobil reported a record $19.7 billion in quarterly earnings, while Chevron and Shell also posted big numbers — $11.2 billion and $9.5 billion, respectively.
Other energy titans reported huge earnings Tuesday. Marathon Petroleum posted a $4.5 billion profit, an increase of nearly 550 percent compared to last year’s third quarter. Phillips 66 reported $5.4 billion in third-quarter profits, a 1000 percent year-over-year increase.
Biden, during a speech on Monday, criticized the high earnings as a “windfall of war” citing the impact of Russia’s invasion of Ukraine on driving up oil prices.
Since that conflict and other factors drove up oil and gasoline prices, companies have experienced a profit bonanza. The Biden administration has called on them to use that income to reinvest in new oil and gas production, in the hopes of getting lower prices for consumers.
National gas prices are sitting at about $3.76 on average, according to AAA. That’s down from the peak of more than $5 per gallon in June but up from $3.40 one year ago.
In his speech on Monday, Biden threatened a “higher tax on their excess profits” and unspecified “other restrictions” if the companies do not increase production.
“So far, American oil companies are using that windfall — the windfall of profits — to buy back their own stock, passing that money on to their shareholders, not to consumers,” he said.
While the windfall tax wouldn’t win enough GOP support to pass the 50-50 Senate — no Republicans voted for a recent House bill to investigate alleged price gouging by oil companies — Biden’s comments represent a significant messaging effort to draw attention to high profits.
“It’s important to take a stand like this, regardless, because the American people need to know that somebody is on their side of fighting for them and not just standing up for the oil company profits,” said Lori Lodes, executive director of Climate Power.
Democrats are struggling to craft a winning midterm message as voters increasingly cite inflation as their top issue ahead of abortion and other topics that gave Democrats a boost earlier this year. Prices rose 8.2 percent over the last year ending in September, driven by massive price hikes for gas, rent and food that are draining Americans’ paychecks.
Biden has repeatedly sought to put blame on the oil industry, and has called on companies to drill more.
Tom Kloza, global head of energy analysis at the Oil Price Information Service, said that oil producers have been “conservative” in their approach to new production, despite recent high prices, as there’s risk of fluctuation.
“Oil shale growth has not progressed on the path that a lot of people thought it would,” he said.
“I don’t think they’re breaking any laws, but almost every one of them has been very, very judicious, not wanting to go through another boom and bust period,” he added of industry.
Kloza said that industry — and he particularly discussed oil refiners — is benefiting from the current situation. But, he described it as similar to high profits made by various industries under capitalism, rather than something that’s unique to oil.
“Sometimes capitalism can have some real excesses in terms of what people make and what profits are rendered. That’s true probably for pharmaceutical companies. It was true in the old days with cigarettes and it’s true these days with fuel,” he said.
The industry, meanwhile, pushed back on the notion that they are responsible for the prices, and also warned that a higher tax would actually prevent companies from pumping more oil.
“Increasing taxes on American energy discourages investment in new production, which is the exact opposite of what we need to do,” Mike Sommers, CEO of the American Petroleum Institute, which represents BP, ExxonMobil and Chevron, told reporters Tuesday. “Oil companies do not set prices. Global commodity markets do.”
The lobbying group called on Congress and the Biden administration to streamline permitting for major energy projects and reinstate lease sales on federal lands to boost production.
Energy giants say they’re investing in new drilling facilities but acknowledge that they’ll only provide slightly more oil supply in the short term. Oil companies have been careful not to overinvest in new production over fears that a looming global recession would stifle demand.
Still, the industry predicts that prices won’t drop much this winter, dimming hopes of relief for cash-strapped consumers.
“Looking ahead to the fourth quarter, we expect gas prices to remain elevated and volatile, with the outlook heavily dependent on Russian pipeline flows and the severity of the Northern Hemisphere winter,” BP executive Murray Auchincloss said on an earnings call Tuesday.
The Biden administration has taken some steps in an effort to provide relief to consumers, including releasing barrels from the country’s strategic reserve this year, but there’s only so much they can do, since gasoline prices are largely based on a global oil market.
Biden also unsuccessfully lobbied the Organization of the Petroleum Exporting Countries to stave off production cuts aimed at keeping global oil prices elevated.
With the midterms a week away, though, the issue is sure to be on voters’ minds.
—Alex Gangitano contributed.
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