Oil Companies Are Raking in Record Profits in This Gas Crisis

Photo credit: George Frey
Photo credit: George Frey

President Biden called out oil refineries in a letter Tuesday, noting that many oil companies are posting record profits during the ongoing gas price crisis. The administration is calling on them to increase supply quickly and explain any capacity decreases since 2020.

"At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable," Biden wrote, as CNN reported. "There is no question that Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing. But amid a war that has raised gasoline prices more than $1.70 per gallon, historically high refinery profit margins are worsening that pain."

Photo credit: The Washington Post/Getty Images
Photo credit: The Washington Post/Getty Images

The letter was addressed to ExxonMobil, Shell, BP, Chevron, Marathon, Valero, and Phillips 66. The companies have not ramped up production in response to rising prices nearly as aggressively as in previous oil price spikes, though the explanations for that are debated. Some accuse the companies of profiteering, others suggest that the companies are hesitant to invest in new capacity at a time when overall global oil consumption is approaching what many experts believe will be its peak. As the world pivots to renewables, there's little appetite for costly investments in capacity.


What the Biden administration does want explained, however, is any capacity cuts since 2020. As the world has come back into motion following the COVID-19 slowdown in economic and physical activity, demand has soared, meaning there would be little obvious reason as to why any company would reduce capacity. Such reductions—absent alternative explanations—could be evidence for profiteering or attempts at price-fixing and collusion. Climate Town has a good explanation of the legal cartels at work in the global oil market, and how they are set up to profit in times of high prices. At a time when it is paying the political cost for the crisis, the Biden administration warns it will have little patience for those kinds of games.

"In addition my administration is prepared to use all reasonable and appropriate Federal Government tools and emergency authorities to increase refinery capacity and output in the near term, and to ensure that every region of this country is appropriately supplied," the letter reads. "I am prepared to use all tools at my disposal, as appropriate, to address barriers to providing Americans affordable, secure energy supply."

The crisis has become a test of Western Europe and the United States' mettle. A key strategic tenet of Russian President Vladimir Putin's invasion of Ukraine is to weaken Western resolve to support Ukrainian resistance by driving up energy prices. Putin's gamble is that while sanctions are damaging Russia far more than they are damaging the West, the limited pain tolerance of these comfortable states will push them toward concessions they otherwise would consider unacceptable.

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