The windfall comes as consumers around the world are feeling the pain of decades of high inflation and a cost of living crisis that is especially painful at the gas pump. Crude oil prices rose above $120 a barrel in March and again in June before falling back, remaining 34 percent higher than a year ago. The national average gas price in the United States jumped at the same time, to more than $5 dollars a gallon for the first time, AAA reported, though prices are now falling.
President Biden has warned the industry that he is considering all options to curb their profits if gas prices remain high. The president and other Democrats have consistently railed against oil industry revenues at a time when drivers struggle to cover the cost of refueling.
While Biden’s tools are limited — there isn’t enough congressional support to advance his windfall profit tax plan — that could change if he declares a “climate emergency,” as the government has said is possible. Energy analysts predict that if gas prices start rising again, Biden could use his presidential powers to gain more government control over domestic oil and gas producers.
Oil executives have pushed back criticism from the Biden administration, saying the only way to correct the supply-demand imbalance in global oil markets is to pump more oil.
“I want to make it clear that Chevron shares your concern about the higher prices Americans are experiencing,” Chevron CEO Mike Wirth told Biden in an open letter. “And I assure you that Chevron is doing its part to address these challenges by increasing its capital expenditures to $18 billion by 2022, more than 50% higher than last year.”
Analysts also note that the oil market is intensely cyclical. The sector suffered during the financial crisis of 2008-2009, again between 2014 and 2016, and most recently during the first two years of the coronavirus pandemic, says Pavel Molchanov of investment bank Raymond James.
“The industry is currently enjoying record levels of profitability, but two years ago the COVID-related commodity crash was an epic debacle,” Molchanov said in an email.
Pump shock: why gas prices are so high
BP’s second quarter results, up $6.2 billion in the first quarter, were driven by strong refining margins, “continued exceptional oil trading performance” and higher fuel prices, the company said in a statement. A surge in global demand and the war in Ukraine were key to the price hikes, which immediately boosted the company’s profits.
“Today’s results show that bp continues to perform through the transformation,” CEO Bernard Looney said in a statement. “We do this by delivering the oil and gas the world needs today – while investing to accelerate the energy transition.”
As a result of the high profits, the company would increase dividend payments by 10 percent to 6,006 cents per common share, more than it had previously expected. “This increase reflects the company’s underlying performance and cash generation,” the company said.
BP said it expects oil and gas prices to remain high in the third quarter “due to ongoing disruption to Russian supply” and “reduced levels of spare capacity”. The geopolitical outlook has also led to a lack of European gas supply that “relies heavily on Russian pipeline flows”, which are expected to keep prices “high”.
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In fact, Shell has announced larger share buybacks totaling $6 billion, while Exxon reported paying out $7.6 billion to shareholders when dividends are included.
Patrick De Haan, chief of petroleum analysis at GasBuddy, said major oil companies appear to be investing in increasing their supply. But in the short term, their focus seems to be on shareholder value, he said.
Exxon and Chevron record blockbuster gains on oil price hike
President Biden has accused US oil giants of taking advantage of the tight conditions. Speaking at the Port of Los Angeles in June, he said, “Exxon made more money than God this year.” The company pushed back, admonishing its government for its attempts “to criticize and sometimes defame our industry,” while oil companies deny allegations that their policies are keeping prices artificially high.
In May, the UK government announced a 25 percent windfall on oil and gas company profits that would be used to help low-income households struggling with a sharp spike in the cost of living. U.S legislators have considered a similar tax, but are unlikely to pass in the evenly divided Senate.
British opposition lawmaker and Chancellor of the Exchequer Rachel Reeves criticized BP’s profits. tweet: “People are very concerned about rising energy prices in the autumn, but we are still seeing dazzling profits for oil and gas producers.”
Left-wing politicians and advocacy groups in both the US and UK called for additional taxes on oil companies’ unexpected profits.
Greenpeace UK tweeted “There’s something very obscene and cruel about gas companies like Shell and BP making record profits while consumers will struggle to keep warm this winter.”
Rep. Rosa De Lauro (D-Conn.) tweeted “Corporate monopolies exceed their market power, hurt families at the pump and drive inflation,” he later added: “Americans don’t deserve to get prices at the pump.”