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Serving Northern St. Louis County, Minnesota

Misleading at the pump

Right-wing disinformation is as close at your local gas station

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Oil companies are not in the business of producing oil. They’re in the business of making money and, as we’re learning these days, that sometimes means producing less oil rather than more. Major U.S. oil companies have learned this lesson in spades, having posted combined profits in 2021 of $205 billion. You read that right.
The U.S. oil sector found that limiting new production is actually better for the bottom line. Why chase new supply to meet higher demand, after all, if those additional barrels only increase your costs and trim the price of a barrel, reducing profits in the process? Rather than sinking profits into expansion of production, companies have dramatically increased dividends to shareholders and bought back stock. You can’t blame them for it. In America, that’s called good business, even if it comes at the expense of consumers.
You can, however, blame the liars out there putting stickers on gas pumps across the country blaming President Biden for the increasing cost of gasoline. Never mind that these dishonest individuals are vandalizing private property, they’re flat out lying to the customers who show up at the pump.
As any economist will tell you, presidents have virtually no influence on the price of gas, and that’s especially the case in the wake of the dramatic supply and demand gyrations stemming from the COVID-19 pandemic. The worldwide lockdowns that took effect in early 2020 sent the oil market into a historic tailspin. For at least a brief period, oil prices actually went negative as the industry ran out of places to store all their oil at a time when consumers quit driving or flying. The whole industry darn near shut down for a time.
Then, as the lockdowns eased, consumer demand skyrocketed, but the oil industry didn’t ramp up production to correspond. Instead, they’ve been happy to keep supply restricted and rake in the cash as oil prices surged in response. And it isn’t just U.S. oil companies. OPEC has gotten in on the action as well.
If you asked one of the Biden sticker people how it is that Biden is responsible for higher gas prices, they would no doubt resort to their usual talking point… i.e., that the cancellation of the Keystone XL pipeline is behind it all. Fortunately, we can calculate to the tenth of a percentage point just how much that decision is impacting the price at the pump today. And it’s exactly 0.0 percent, since the pipeline wouldn’t have been transporting oil any sooner than 2023 in either case, even if it had been built. Keep in mind, President Obama canceled the same pipeline back in 2015, and the price of oil dropped nearly 20 percent the following year. The cancellation of the pipeline was symbolic, to be sure, but hardly significant and it has absolutely nothing to do with the price of oil.
While the administration promised to halt oil and gas leasing on federal lands and take action on climate change, its actual policies have understandably frustrated climate activists. While the administration instituted a temporary pause on oil and gas leasing on federal lands in its early days, a court quickly tossed that decision. Meanwhile, the administration decided to go ahead later last year with the largest offshore oil lease sale in the Gulf of Mexico in U.S. history.
And, as the White House noted last week, the industry has thousands of federal leases affecting millions of acres that continue to sit unused. There is no shortage of opportunity for the “drill, baby, drill” crowd, just a lack of incentive to truly ramp up production to meet demand.
Finally, in fairness to the oil and gas industry, there are legitimate reasons to question major new investment in exploration and expanded production. We know that we can’t burn the existing reserves without cooking the planet (sorry, that’s science, not spin), so if policymakers in the U.S. ever get their act together on climate change, investments in new production may never pay off.
At the same time, there is a growing movement among investors to avoid the oil and gas sector, in part due to the growing risks associated with such investments. And we can’t dismiss the moral taint increasingly associated with an industry that spent billions of dollars over the past couple decades lying to the public and lawmakers about the link between the burning of fossil fuels and catastrophic climate change, lies that could have the industry eventually facing the same kind of legal judgments as the tobacco industry. Most investors tend to shy away from that kind of stink.
In the meantime, the price of oil has dipped from its previous highs in the immediate aftermath of the Russian invasion of Ukraine. The earlier runup prompted an immediate spike in prices at the pump, yet the falling price of oil hasn’t led to a similar decline in pump prices. Gouging consumers, after all, is practically a sport in the U.S. It’s a sport that our big corporations play to win.