On Wednesday, the president addressed the nation regarding the economy, including historic gas prices. For the first time in history, the national average for the price of a gallon of gas has reached five dollars. Americans are feeling the burn when it comes to these red-hot prices, and many expect the Biden Administration to do something about it. During his speech Wednesday, Biden threatened to use his “emergency powers” if gas and oil companies, particularly refineries, do not act to lower gas prices.
The Biden Administration has long blamed other entities for the skyrocketing price of fuel. His list of targets have included Vladimir Putin and the oil companies themselves. However, his speech on Wednesday included a bit more vitriol than usual. The White House has hinted for the last few months that big oil companies are raking in record profits while the American consumer suffers.
Just a few hours after the Biden speech, however, one of the major oil companies clapped back at Joe Biden.
Officials at ExxonMobil say that they have “been in regular contact” with the president and his officials in order to provide updates on how its company is investing “more than any other company to develop U.S. oil and gas supplies.”
According to the statement, ExxonMobil has invested $118 billion in new supply of both oil and gas since 2017. This investment was compared with a net income of $55 billion. As a result, the company has seen a return of at least a fifty percent increase in production between 2017 and the present.
ExxonMobil claims that it continued investing even in the midst of the pandemic’s economic downturn so that some 250,000 barrels of crude oil are processed each day. The company says this is the equivalent of establishing a new “medium-sized” refinery.
In the statement, the company says it lost over $20 billion and then borrowed $30 billion so that the investment would be maintained. ExxonMobil claims that the company did so in order to prepare for the surge in demand certain to come in the aftermath of the pandemic.
ExxonMobil then asked the president to create a “clear and consistent policy” which would promote the development of resources here in the United States.
While most media outlets are falling in line with the president’s rhetoric, Yahoo Finance released a report in which they examined the claim that big oil companies have seen record profits during 2021 and 2022, when gas prices began rising.
In April, the House Energy Committee tweeted that (big oil companies) “are reaping record profits and using them to the benefit of shareholders rather than increasing production to lower prices at the pump.”
Since then, Democrats by and large have called for a windfall tax that would target oil companies and then provide relief to Americans.
The issue is that the most profitable companies in 2021 and 2022 have not been oil companies. According to Rick Newman at Yahoo Finance, “U.S. energy firms were the tenth most profitable sector of the U.S. economy – out of eleven sectors.” Financial institutions had a 25.3 percent profit margin in 2021, and big tech saw a profit of 23.2 percent. Pharmaceutical companies posted a profit margin of 23.1. Big oil? Their profit margin was a mere 8.3 percent for all of 2021.
Newman says that profit margin predictions for 2022 are “similar.”
In fact, ExxonMobil was the company with an 8.6 percent profit margin. For 2022, the company is expected to see only ten percent profit.
Apple, Pfizer, and Citigroup all saw profit margins of more than 20 percent for 2021.
Yes, oil companies earn more when the price of their product is up. Yes, their profits are up recently. However, there were many “disastrous” years for big oil too. In 2020, big oil companies lost $22.4 billion due to the pandemic (remember, oil prices were negative for a short time in 2020). Over a ten year period, oil has seen only an 11.1 percent return on its stocks. During the same ten year period, tech stocks grew by 472.2 percent.
Newman proposes that punishing one industry with a windfall tax could actually hurt Americans more. Investors could lose interest, and production could decrease further.
The market will eventually right itself, but, in the mean time, easier access to drilling permits and opening up more land for drilling would increase production and bring down prices. A windfall tax would likely only hurt Americans in the long run, much like the ill-fated stimulus checks of the pandemic.