Oil Trade Groups Repudiate Biden's Claims
Gas prices were climbing before Russia invaded Ukraine. This is primarily due to the economy's slow recovery from the pandemic's supply and demand disruptions. When unrest erupted on February 24, gas prices rose quickly. Overnight, the global price of a barrel of crude oil climbed beyond $100, a level not seen since 2008.
Oil refiners have emerged as the new target of the White House's ire in the ongoing search for a scapegoat for the nation's persistently high gas prices.
This week, as gas prices reached $5 per gallon, President Joe Biden wrote a letter in which he criticized "high refinery profit margins" and pledged to use "all reasonable and appropriate federal government tools" to bring more refined products to market and lower prices at the pump. The letter was sent as gas prices reached $5 per gallon.
This phrasing does not imply that he contemplates having the government take over refining. Still, this would be quite logical, acceptable, and more effective than any steps he considers.
Since the beginning of the pandemic, when oil demand plummeted because travel came to a halt both domestically and internationally, the United States has lost around 5 percent of its refining capacity.
The unusual characteristics of the fossil fuel industry in the United States, in which the state provides generous subsidies to companies but has no control over investment decisions, meaning that the tools that President Biden appears willing to use to bring that capacity back online in the face of rising demand are limited.
The reopening of idled refineries might take as long as six months and cost hundreds of millions of dollars.
Companies and their investors are not likely to move through with such an endeavor unless they can guarantee returns over the course of the entire endeavor.
"Refiners do not make multi-billion dollar investments based on short-term results," the American Petroleum Institute and the American Fuel & Petrochemical Manufacturers wrote in a joint response letter to the White House.
They look at supply and demand fundamentals over the long term and then make investments accordingly.
On Wednesday, executives from two U.S. oil industry trade groups rebutted President Joe Biden's accusations that refiners were reaping undue profits. Biden's charges that refiners were reaping excessive profits were made in response to Biden's statement that refiners were reaping undue profits. They denied his claims that the sector is not doing its part to ramp up production and lower energy costs and instead placed blame on Biden's policy agenda.
In a letter, the President of the American Petroleum Institute, Mike Sommers, and the Chief Executive Officer of the American Fuel and Petrochemical Manufacturers, Chet Thompson, pointed out that American refineries are currently operating at a "world-leading" 94 percent of capacity.
Sommers and Thompson wrote in their article that "although the Russian invasion is undoubtedly exacerbating the situation, today's challenges are largely the result of high crude prices due to 1) a supply/demand imbalance, 2) logistics reshuffling as the world emerges from the pandemic, strong consumer demand, the ban on Russian products, and policy decisions made at the federal and state levels over many years and by successive administrations." "Although the Russian invasion is undoubtedly exacerbating the situation
Both API and AFPM provided a list of seven "realities" they believe are to blame for the recent increase in pricing.
It was mentioned that the prices of refined products are ultimately determined on global markets, that the refineries in the United States are "operating at or near maximum utilization," and that approximately "one-third of recent refining capacity loss is due to conversions to renewable fuel production."
The executives also mentioned that investing in additional capacity is a decision that should be made over a long period of time and that it is discouraged by Biden's efforts to move the economy away from fossil fuels. They referenced his comment during the campaign that he meant to "end fossil fuel."
In point of fact, they went on to say that refiners in the United States are adding new refining capacity "where it makes commercial sense."
They went on to say that the current market dynamics are quite complicated, noting that even if refiners were able to bring more refining capacity online, "the effect may be more demand and higher costs for crude oil."
This answer came just hours after President Biden issued a demand to increase oil and diesel fuel output to seven large integrated refinery operators, including ExxonMobil, BP, and Shell.
The increasing pressure from Biden comes in the wake of his recent attacks on energy companies for raking in enormous profits even as consumers in the United States pay record highs at the pump.
Recent remarks claimed that Exxon Mobil has "made more money than God this year and, by the way, nothing has changed."
He went on to complain that his administration's plan to concentrate on ethanol and biofuels was an ineffective strategy for helping to bring down the cost of gasoline.
While many Americans struggle to afford record-high fuel costs, which on Wednesday climbed to a national average of $5.014 per gallon, President Biden pointed out that the earnings of refiners have "tripled" in the letters that he sent out.
And while Russia's involvement in the conflict in Ukraine has unquestionably contributed to the rise in prices, Biden also brought up that profit margins for refiners are currently at their greatest point on record.
In the letter Biden sent to the refiners, he said that "the crunch that families are facing needs quick action," and he added that "your companies need to join with my Administration to bring forward meaningful, near-term solutions that solve the issue."
On Wednesday, President Joe Biden gave the impression that his administration is prepared to "take action" if oil corporations fail to increase their production; however, he refrained from providing specifics regarding what these consequences would entail.