With elections approaching, Republicans want voters to believe Joe Biden is.
But that’s ridiculous on its face. President don’t set pump prices. While they often get blamed for high gas prices, they have no control over them. Pump prices result from market forces of supply and demand.
Oil is a depleting resource. To keep production up, oil companies have to constantly find more oil and recover it. And that’s very expensive.
The money dried up when Saudi Arabia decided to destroy the U.S. shale oil industry. Starting in 2014, they flooded the market with oil to drive prices below the shale producers’ production costs. Of course, that affected all oil producers, not just shale drillers. Let’s look at what it did to the sales and profits of two U.S. oil majors, Chevron and Exxon, and a leading oilfield services firm, Schlumberger.
In 2011, Chevron’s revenue was $253 billion and profits were $26.9 billion; in 2014, $212 billion and $19.2 billion. But in 2015, after the bottom fell out of oil prices, sales were only $138 billion and profits $4.6 billion. The following year, 2016, its sales slid to $114 billion and Chevron lost $500 million. The pandemic, which took millions of trucks, buses, and cars off the roads, exacerbated the situation; last year, 2020, Chevron’s revenues dropped to $94.7 billion and the company lost over $5.5 billion.
In 2011, Exxon’s revenue was $433 billion and profits were $41.1 billion; in 2014, $364.8 billion and $32.5 billion; in 2015, $236.8 billion and $16.2 billion; 2016, $226 billion and $7.8 billion; in 2020, $181.5 billion and -$22.4 billion.
In response to this, all of the world’s major oil companies, not just Chevron and Exxon, drastically cut their spending on E&P (exploration and production). Schlumberger, which sells equipment and services to oil producers, saw their sales drop from $48.6 billion in 2014 to $27.8 billion by 2016 and $23.6 billion in 2020,and indication of how much oilfield activity declined. The story was the same at other oilfield suppliers who depend for business on oil company spending on drilling and extraction. This slammed production hard.
Less drilling and extraction results in less oil coming to market. And with pandemic-shuttered economies now reopening, the oil glut is gone, and supplies are tightening. That’s why gas prices are leaping, and there’s not much anybody can do about it. It’s a result of years of ruinously low oil prices and the accompanying massive disinvestment in production.
If you want to blame somebody, blame the Saudis and their manipulating the market to drive U.S. producers out of business. You got several years of cheap gas from it, at the expense of future supply. That couldn’t last, and it didn’t; prices would rise when demand overtook diminished supply, and that’s where we are now.