This week, President Biden caused a stir in the news world by once again pointing the finger at the oil industry, accusing the companies of “war profiteering” and threatening what essentially amounts to a financial penalty to unless they open the taps.
It’s rhetoric that sounds familiar and takes us back to the summer when Biden was trying a similar approach with Saudi Arabia. It also coincides with a statement from OPEC indicating that oil demand will continue to grow strongly until at least the middle of the century.
To make matters even more complicated, Biden tweeted Monday that gasoline prices had fallen more than $1.20 a gallon since peaking this summer and had been falling for three straight weeks. The tweet came just days after the profiteering accusations the US president leveled at the oil industry.
This industry must be pretty confusing right now. On the one hand, oil companies – especially big oil because of their big profits – are being targeted with threats of windfall taxes and “other restrictions” of an as yet undetermined nature.
The threats are accompanied by calls for more investment in production, which runs counter to the Biden administration’s energy transition agenda, as recently set out in the Cut Inflation Act. From the perspective of the oil industry, the US President is essentially demanding that they spend money on what will soon become stranded assets if the transition is successful as planned.
On the other hand, OPEC says oil demand is going nowhere. On the contrary, it will grow more strongly than expected, the group said in its World Oil Outlook. reportwhich came out this week.
In it, OPEC estimated that global oil demand would increase by 2.7 million barrels per day between this year and next, to a total of 103 million bpd. By 2030, global oil demand will reach 108.3 million bpd, OPEC said in its report.
That might be reason enough to boost drilling, but only for some companies. Most Big Oil made big bets on things like wind, solar, hydrogen, and electric vehicle charging because corporate investors pushed those companies to make those big bets. Management has also been on board, sensing an uninterrupted ESG shift in the investment world.
That’s not to say that big oil companies — or small Permian independents, for that matter — can’t ramp up production and avoid getting taxed on windfall profits. They probably can, but the president’s statements on his energy policy are not enough to stimulate further investments in production.
The industry seems to have a better memory than the average voter and remembers that the very first thing Biden did when he took office was kill the Keystone XL pipeline in what many considered the first blow of fire in his administration’s perceived war on the US oil industry. .
“Rather than taking credit for falling prices and blaming themselves for rising prices, the Biden administration should seriously address the imbalance of supply and demand that has caused prices to rise. gas prices and created long-term energy problems,” said the president of the American Petroleum Institute. , Mike Sommers, said in a statement in response to the president’s threats for windfall profits.
“Oil companies don’t set prices – global commodity markets do,” Sommers continued. “Raising US energy taxes discourage investment in new generation, which is the exact opposite of what is needed. American families and businesses look to lawmakers for solutions, not campaign rhetoric. »
This isn’t the first time the industry has tried to explain to members of the Biden administration, including the president himself, that fuel markets aren’t as straightforward as one might assume on the face of it. based on the summaries of the quarterly financial reports.
However, this may be the first time that a head of state who defines himself as a democracy has threatened reprisals against private companies if they continue to put the interests of their shareholders, i.e. the owners, first. , versus the interests of the administration, which is what it all boils down to, with the midterms now in a few days.
Indeed, U.S. gasoline prices have fallen significantly from summer highs and are now just $0.35 above the average for the same period last year, according to the AAA. Yet, based on Biden’s fervor to urge oil companies to lower prices further, that’s not enough. And in all honesty, whatever the oil companies do, they wouldn’t be able to bring prices down by Sunday.
In the longer term, the situation also remains confused and highly uncertain, further discouraging the industry from doing what the administration wants. OPEC expects oil demand to rise, but the IEA said a few days ago that oil demand is expected to peak by 2030.
It is not easy to navigate a landscape of such conflicting forecasts for oil demand, which is essentially the single factor driving investment decisions in the oil industry. So, in a time of so much uncertainty, the oil companies are doing what anyone else would do in their place: they are staying cautious and prudent with their money. A windfall tax will only reinforce caution.
By Irina Slav for Oilprice.com
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