by William E. Scheuerman / February 1st, 2023
As I pulled into the gas station to fill up, my car radio car told me that on January 31st Exxon-Mobile announced record-breaking profits of over fifty-five billion dollars. With the price of gas again approaching four bucks a gallon, I was certainly making my contribution to Big Oil’s profiteering. The big oil companies justify their price hikes by rightly claiming that consumer demand for oil far outstrips supply. Okay. But why hasn’t the supply kept pace with demand? Republicans blame Biden for not issuing new drilling leases the oil companies want. Democrats blame the embargo on Russian oil. It’s true that oil prices increase as the supply decreases, but oil companies control the supply. And that’s their ticket to price gouging.
The industry’s assertion that they need more permits to drill on public lands is false, first, because Big Oil already holds about 9,000 permits to drill on federal land they’re not using. Second, even if government granted new leases and companies decided to drill, it wouldn’t have an effect on current prices because new oil wouldn’t reach gas stations for years. Gas prices did shoot up after the announcement of the embargo on Russian oil. The embargo effected the world market, but only about three percent of our crude oil supply comes from Russia.
In the past, American petroleum companies increased production when prices started to climb. But as a CNN report noted, that approach cut into corporate profits by glutting the oil market and driving the price of oil and gas down. If over-supply of gas is the problem, as oil executives believe, planned scarcity is the solution. And that’s just what the giant oil corporations are doing. According to oil analyst Pavel Molchanov, current U.S. oil production is still below the 2019 level, and despite pressure from the Biden administration to produce more, the companies are planning to keep supplies limited. The point is, oil companies and not the U.S. government control supply, and oil companies want to limit supply to maximize profits.
Keeping the spigots turned down has proved exceedingly profitable for America’s major oil producers. As noted earlier, on January 31 the two-hundred- and sixty-billion-dollar Exxon-Mobile corporation announced profits of more than fifty-five billion dollars, its biggest haul ever. Chevron, America’s second largest oil giant worth around two hundred billion, raked in more than thirty-five billion in profits last year. Rather than using these enormous profits to increase production, the lion’s share went to stockholders and to buy back company stock, which, of course, drove up the stock’s market value. Exxon-Mobile and Chevron are not alone in their relentless pursuit of profits. The world’s oil majors – Exxon Mobile, Chevron, Shell, British Petroleum and Total Energies – collectively pocketed one hundred and ninety billion in profits last year, leading one oil company stockholder activist to characterize 2022 as “the year the empire struck back.”
Big Oil wants us to believe that the spike in prices is a function of a self-regulating free market. Free market theory is premised on the idea that there are many producers and consumers, and no one is capable of controlling supply or demand. According to this idea, if one producer overcharges consumers, an infinite number of others draw customers away with a lower more competitive price. In a competitive market, prices continually drop, and profits tend to approach zero. But the ideals of free market capitalism are nothing more than a fairy tale in the oil industry where a handful of huge companies control the bulk of production. The industry spends ten of millions in campaign contributions, political lobbying, and on public relations to convince the public and elected officials that the fairy tale is real. But it’s not. Unless this fairy tale is exposed for what it really is – a justification for price gouging – oil prices will generally continue to trend upward simply because Big Oil can get away with it.