By Irina Slav
Last week, U.S. House Democrats unveiled plans to “go after” Big Oil, accusing the supermajors once again of gouging retail fuel prices and profiteering from the financial pain that fuel price inflation has caused the ordinary American driver.
Speaker Nancy Pelosi accused Big Oil of “hoarding” the profits they made from the latest oil price rise. Senate Majority leader Chuck Schumer called Big Oil “vultures”. As an American would say, there’s a lot to unpack here.
For starters, the rhetoric used by Pelosi and Schumer — not just last week and not just by them — oddly reminds me of government rhetoric in “The Twelve Chairs”, a classic Russian satirical novel, where the story takes place in the early years of the Soviet Union.
The image of businesses, especially big businesses, as brutal machines for the exploitation of people is an enduring one in the Communist ideology and the reason it is so enduring is that, as all good propaganda, there is truth in it. Large corporations in the early 20th century were unemotional formations with an agenda and the wellbeing of their workers or the consumers of their products or services was not at the top of this agenda. Profits and happy shareholders were.
We have gone a long way since then, and now large corporations (except perhaps one) tend to take care of their workers. The image of the exploitation machine has evolved thanks to people who just wouldn’t shut up about the rights of workers, just like they wouldn’t shut up about civil rights at one point. Yet businesses remain unemotional formations that only care for profits and happy shareholders because that’s what businesses do.
Somewhere along the way of businesses’ evolution, however, the road twisted, apparently, and now legislators such as Pelosi, Schumer and my personal favourite, California Rep. Ro Khanna, appear to be attempting to take it upon themselves to be the people who wouldn’t shut up — this time about the energy injustice that is plaguing America.
“Big Oil is to blame for the price volatility and sudden increase of gas by 46 percent,” Khanna told CNN last month in comments on a proposal co-authored with House Oversight Chairwoman Carolyn Maloney. “Many Americans are livid that they are getting fleeced at the pump while Big Oil pockets billions,” Khanna added.
The proposal itself called for the suspension of stock repurchases and dividend payments until the war in the Ukraine was over.
“As Vladimir Putin’s illegal war against Ukraine is raising gas prices and hurting Americans at the pump, fossil fuel companies are taking advantage of the crisis by raking in record profits and spending billions of dollars to enrich their executives and investors,” a letter by the authors read.
What these legislators are doing is using a classic tactic, which has become classic (mostly on playgrounds and in schoolyards but also in politics) for its simplicity, albeit some may consider it quite crude and unrefined. And with a high sulfur content, if I’m being totally honest. Compared to this tactic, the one used in “Wag the Dog” is unnecessarily complicated.
Here’s the gist of the tactic, which I will brazenly call The Bogeyman. You find yourself in a lot of trouble, some of it inherited, some — a lot — the result of your own actions, and some the result of actions by external actors you have no sway over.
You panic a little but then you remember you have not one but two big, fat targets, on which you can pin the responsibility for all your problems. It’s okay, everyone will believe you because people already blame these targets for a lot of things. People before you have made sure of that.
You proceed to level a steady barrage of accusations against your chosen targets, accompanied by action aimed at showing your audience, I mean voters, you are Doing Something about It, including proposals to ban oil exports and use oil from the strategic reserve of the country to bring prices down, a windfall tax on one of your targets, an import ban on the other target, and, an all-time favourite, calls for regulators to step in and hit the alleged wrongdoers where it hurts, i.e. in the pocket.
The tactic works flawlessly if you have done the necessary preliminary work, such as studying the wider context, in which your actions are taking place. This, however, appears to not be the case this time.
The proposed ban on oil exports is not only not going to happen; exports are on the rise and pretty certain to continue rising as the EU imposes an embargo on Russian oil. The windfall tax, if it happens, will only lead to higher prices for the commodity that fuels are made of, leading to higher prices for the fuels. And the latest calls for regulators to investigate alleged price-gouging will likely end the same way previous investigations have ended: with zero proof there is price-gouging going on, at least on the part of Big Oil.
Meanwhile, production growth in the most prolific region in the U.S., the Permian, is stumbling on worker and equipment shortages, and investor skepticism, and total production may grow a lot less this year than previously hoped and expected. Yet another tailwind for oil prices.
I realise I risk cementing my budding reputation as an oil shill with this but I’m past caring at this point. There is abundant evidence that the current oil price trajectory is mainly the result of a deepening imbalance between the supply of crude oil and the demand for it.
Crude oil is also the feedstock from which fuels are made. If your feedstock is expensive, this automatically makes your product more expensive. When your product is more expensive, those that buy it have to pay more for it, if you’ll excuse this crude statement of the obvious fit for four-year-olds.
But crude oil prices are falling and petrol and diesel prices are not falling, as duly noted in early April by Rep. Diana DeGette, chairwoman of the House Energy and Commerce Subcommittee: “If the price of gas is driven by the global market, why is the price of oil coming down but the price at the pump is still near record highs?”
This is a perfectly valid question but one that could have aged better. In early April WTI did indeed slip below $100 per barrel. By Friday, April 29, however, it was back above $100, or more precisely at $104.65 per barrel. The price of oil, then, was not so much “coming down” as taking a little break from climbing because China was locking down cities in response to new Covid cases.
Meanwhile, more bad news came from the domestic oil front from the EIA last week. U.S. oil production actually declined in February, the agency estimated. And it declined by over 400,000 bpd from November last year. While oil prices were rallying.
While the White House first threatened and then pleaded with the industry to pump more. While Congress was attacking said industry about making money from drivers’ misery. And while everyone in Washington appeared to ignore the anti-oil offensive in the investment sector and the widespread shortages of things like cement, steel tubing, equipment, and, not least, workforce, that combined to create what is nothing less than a perfect storm for U.S. oil.
Demand for that oil, as well as U.S. gas, is rising. Drillers have green Europe to thank for that. Yet responding to that demand might prove tough with the dip in oil production and, because bad news comes in threes, a slowdown in natural gas production growth and a shortage of trucks.
On the flip side, this will lead to even higher energy prices in both Europe and the U.S., motivating greener behaviour on both sides of the Atlantic. That’s exactly what the heroes of the transition are fighting for, isn’t it? And they could continue to blame Big Oil and Putin for everything, including their own actions.