Oil prices are high worldwide, not just in the USA.
U.S. oil companies are not jumping to produce more oil. It isn't because of something Biden is or isn't doing. It is because investors demand that oil companies be profitable.
Presidents aren't defenseless. They have the bully pulpit, and a persuasive communicator tells a story to explain bad news. Biden is not that persuasive communicator, alas. A better communicator could be telling the story that gasoline prices were unusually low in the past because COVID put so many people out of work and so depressed the economy that there was a temporary oversupply of oil and refining capacity. Out of work people don't travel much. Closed factories don't use much energy. Oil prices are up because unemployment is down, because business is recovering, because America is working again. This is good! Moreover, those good, patriotic working people of America--essential workers--are getting better paid, finally, and we should be happy about that. If Biden had the capacity to share an optimistic narrative, one is there to be shared. I am not angry with Biden. Biden's limitations were always apparent. Those limitations have consequences. Republicans are shaping a narrative of failure.
I follow the price of oil stocks because I own them. The dividends are part of my retirement income. I don't feel shame, although I know some of my friends think I should. Oil companies have destroyed the world's climate, right? No. consumers who use oil create the demand. The guilt is ours. Oil companies sell oil because we demand it. People who dislike fossil fuel companies are happy to see an open gas station when their tank registers "E."
U.S. oil is a small part of the world's supply. It seems obvious that U.S. companies would respond to the higher prices of oil and gasoline by producing more to meet the need. After all, if they were selling oil profitably when oil was $70/barrel and gasoline at $3, then they would be making money like gangbusters now that it is $100/barrel and $5. So it makes sense that they would ramp up production to take advantage of higher margins. Right?
No. Oil companies feel burned by the era of too-low oil prices caused by increased supply from Russian and Saudi production, then exacerbated by COVID's demand reduction. Investors punished those companies. They were losing money year after year. Stock prices sank. The companies had over-invested in expensive fracked shale oil. They had "stranded assets," i.e. oil that cost more to extract than it could be sold for.
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| Data from Dallas Fed. Graph from Maudlin Economics |
Investment company research describes the now-repentant companies as exercising "capital discipline." Capital discipline means they book their profits, increase dividends, buy back shares, and don't spend the extra money they are earning on new production. American consumers may have been delighted that oil companies over-invested and lost money selling gasoline, but oil company stockholders and executives want oil companies to be profitable.
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| Data from Dallas Fed. Graph from Maudlin Economics |
5 comments:
Biden is caught between the Scylla of reality and the Charybdis of politics. (I knew that mythology course would come in handy some day!) Voters will blame him for high gas prices regardless of what he can or cannot do about them.
Deft and charismatic politicians can change the subject and warp perceptions of reality to their advantage. Biden is not one of those.
I agree, he can't do much but Biden is missing an opportunity to rally the country around defending democracy and fighting fascism by encouraging conservation. That's leadership.
However, subsidized energy is baked into the economy whole, so this initiative has to be tied to increased production sold to Europe, which I think will happen soon.
It seems inevitable that even a little opportunistic increase in worldwide production would create a glut that would damage Russia further. Going after their oil profits is key to ending the war, and enforcing better behavior in the future, including stiff and lasting reparations.
I'd hope for that.
It’s just supply and demand – free market capitalism at work. Conservatives would have no problem with it except that Democrats are in charge. If gas is too expensive, we could always ration it. That would probably get some of those forty-foot RVs off the road too.
Join the company of autocrats. Support the vicious oil barons and their environmental henchmen. Make buck, lose democracy.
New rules, none. Investors without morals or country or loyalty. The buck stops in the pocket of oligarchs and the investor class who make the rules. Destroy the planet because everyone else is doing it, doing it. Name one oil rich country that has democratic institutions , a free media, and the vote of the people. USA USA. , oh really?
If the prices of oil (and the fact that we're supporting terrorism and climate destruction) doesn't show the need for alternative energy sources, then nothing will.
The Democrats were right about it decades ago, and they are right about it now.
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