Brian Mudd

Brian Mudd

There are two sides to stories and one side to facts. That's Brian's mantra and what drives him to get beyond the headlines with daily stories driven...Read More

 

Q&A of the Day – Are Energy Companies To Blame For Gas Prices? 


@brianmuddradio I know Biden’s full of it with his feigned rage against oil companies since he created the supply problems. But is there any truth to rising profit margins by energy companies? If they are trying to take advantage right now that would be wrong. 

Bottom Line: I completely agree with you. If energy companies were expanding their margins during an inflation crisis – that would be very wrong. Of course, we’re having this conversation because President Biden fired off a threatening letter to energy companies on Wednesday, effectively blaming them for the current problems. As stated in Biden’s letter:  

The last time the price of crude oil was about $120 per barrel in March, the price of gas at the pump was $4.25 per gallon. Today, gas prices are 75 cents higher and diesel prices are 90 cents higher. 

Ok, where. To. Begin. This assertion is as absurd as it is embarrassing for the Biden administration – at least for the fully informed. The price for a barrel of oil spent exactly one day in March above $120 – March 8th. The average price for a barrel of oil during the month was $106 per barrel. Comparatively, oil has already spent 3 days above $120 per barrel in June, and the average price for a barrel of oil has been $117 over the past four weeks. The premise of the President’s comments is completely false. What’s more, is the impact of inflation on the industry itself. Is inflation higher today than in March? Of course, it is right? So naturally the cost of operations would be higher for these companies as well. What’s more is where has inflation risen fastest? Energy prices of course. And it just so happens that the energy industry is perhaps ironically, especially exposed to the rise in energy prices. It requires large amounts of energy to harvest oil, to refine it into gas and to transport it to gas stations. Like I said, the president’s assertions in the example were absurd. Let’s take another claim from the letter: 

Your companies and others have an opportunity to take immediate actions to increase the supply of gasoline, diesel, and other refined product you are producing and supplying to the United States market. With prices for your product where they are today, you have ample market incentive to take these actions.  

Now, this is where you don’t have to be economically literate to understand there’s more to the story. Do companies want to intentionally make less money? Do publicly traded companies (as all of these who received letters from the president are) have a legal responsibility to act in the best interests of shareholders? There’s not only a business incentive but a legal incentive for increased production. And we have seen marginal examples of expansion within existing operations where possible by energy companies. But why not even more?  

As I’ve illustrated many times, it was day one Biden administration policy to kill the Keystone XL pipeline, but also week one policy to sign sweeping executive action to increase regulations on energy companies and to ban the harvesting of energy on 2.46 billion acres of federal land. So yeah, here’s the thing. The Biden administration isn’t handing out new permits for drilling. Details, right? So, what exactly was this letter? A marketing scam. 

No, I don’t think President Biden is especially bright, but no I don’t think he’s so stupid as to create the energy supply crisis and to prevent energy companies from doing what he’s calling on them to do and not realize it. This wasn’t meant for the energy companies. This was meant to be reported on by a willful press to attempt to once again shift the blame. Evidently, he realized his original marketing scam of the “Putin Price Hike”, isn’t sticking – so now he’s choosing a different tact. By blaming big oil. An easy target for the uniformed. So, what is real? 

The average profit margin of energy companies over the past year has been 8.3% - which happens to be the 2nd lowest of any US industry. The average profit margin has been 10.6%, or 28% higher than the energy industry. What’s more...profit margins are falling. Current profit margins are pacing 8.1% for this year, a 2.4% decline over last year’s margins. Biden’s claims are outrageous in that he created the issues through executive actions and demonstrably false when facts are presented.  

ExxonMobil offered this in response: In the short term, the U.S. government could enact measures often used in emergencies following hurricanes or other supply disruptions -- such as waivers of Jones Act provisions and some fuel specifications to increase supplies. Longer term, government can promote investment through clear and consistent policy that supports U.S. resource development, such as regular and predictable lease sales, as well as streamlined regulatory approval and support for infrastructure such as pipelines. 

That’s a politically correct way of saying to President Biden that he’s the problem. Which, in fact, he is. 

Each day I feature a listener question sent by one of these methods.  

Email: brianmudd@iheartmedia.com  

Gettr, Parler & Twitter: @brianmuddradio  

iHeartRadio: Use the Talkback feature – the microphone button on our station’s page in the iHeart app.     

High gas prices - pouring money into gas tank

Photo: Getty Images


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