Big Oil executives defended their record profits against accusations of price gouging in a contentious hearing before the House Energy and Commerce Subcommittee Wednesday, as record high prices at the gas pump continue to crimp drivers across the country.
In testimony that lasted nearly three hours, executives from six fossil fuel companies, including Exxon Mobil (XOM) and Chevron (CVX) repeatedly denied assertions that their firms are holding back production, to keep prices elevated, even as Committee Chairman Rep. Frank Pallone (D-NJ) publicly called out oil producers for “ripping off” American consumers, instead of providing relief.
“They’re buying back their stock at an estimated cost of $40 billion this year,” Pallone said. “Big oil is lining their profits with one hand and taking billions in taxpayer subsidies with the other. Meanwhile, American people are getting ripped off as companies choose to keep production low so their own profits stay high.”
Supply shortages brought on by the pandemic and the Russian invasion of Ukraine have pushed gas prices to new highs, with the national average price per gallon hitting a record $4.33 last month, according to AAA. Year-over-year prices have increased more than 40%.
While prices have moderated slightly in recent weeks, they haven’t fallen as steeply as international crude prices, which have declined 23% from $139 per barrel in early March to $103 on Wednesday. That has driven allegations of price gouging by Democratic lawmakers.
“If the price of gas is driven by the local market, why is the price of oil coming down but the price at the pump is still near record highs?” said Rep. Diane DeGette (D-CO).
'No single company sets the price'
In testimony, Exxon Chairman and CEO Darren Woods said gas prices are simply the function of supply and demand, calling for a shift in government policy that encourages an increase in the supply of oil and natural gas.
“No single company sets the price of oil or gasoline,” he said. “The market establishes the price based on available supply, and the demand for that supply. Continued investment in new production to offset depletion and meet growing demand is the only way to achieve balanced markets and more affordable prices, bringing real relief at the pump.”
Chevron Chairman and CEO Michael Wirth echoed those statements, highlighting that his firm only owns and operates a fraction of Chevron’s 150,000 gas stations globally.
“I want to be absolutely clear: we do not control the market price of crude oil or natural gas, nor of refined products like gasoline and diesel fuel, and we have no tolerance for price gouging,” Wirth said. “Over the long term, patterns in the price of gasoline reflect patterns in the price of crude oil, gasoline’s primary raw material. However, it is not always the case that gasoline prices will exactly track the price of oil in the short term.”
The hearing comes as Democrats struggle to find a unifying strategy to combat rising gas prices ahead of the midterm elections. While pandemic driven supply shortages and the Russian invasion of Ukraine have contributed to a dramatic increase in prices at the pump, recent polls show Americans put the blame largely on the Biden administration’s policies. A recent poll conducted by Quinnipiac University found that 41% of Americans blamed the White House’s economic policies for the rise in gas prices. Twenty-four percent blamed the war in Ukraine and sanctions against Russia.
Democrats have proposed everything from a windfall tax to a “use it or lose it” policy on federal drilling permits as a potential solution.
Meanwhile, energy companies have posted record profits. On Monday, Exxon Mobil said its results from the first quarter would likely top a seven-year record, with operating profits from pumping oil and gas expected to be up to $9.3 billion.
An 'all-of-the-above approach'
Republicans have pointed to Biden’s energy policy and focus on climate change as reasons behind the spike in prices, pointing to the cancellation of the Keystone XL pipeline and the president’s pause in auctions for drilling on public land. In reality, the administration has approved more federal drilling permits in its first year in office than the Trump administration did in its first three years.
"It is impossible to generate confidence or invest in production today when future production is clearly being blocked by this administration," said Rep. Morgan Griffith (R-VA).
The @IEA is moving ahead with a collective oil stock release of 120 million barrels (including 60 million barrels contributed by the US as part of its overall draw from its Strategic Petroleum Reserve).
More details of specific contributions will be made public soon.
— Fatih Birol (@fbirol) April 6, 2022
A record release of 1 million barrels a day from the U.S. Strategic Petroleum Reserve has provided short-term relief. On Wednesday, the administration got an additional assist from the International Energy Agency, which announced its members planned to release 60 million additional barrels from their oil reserves, marking the largest release in IEA history.
But the administration’s critics have argued the decline in prices are unlikely to be sustained, and don’t change the supply and demand dynamics, unless the government commits to long-term investments in fossil fuels.
Scott Sheffield, CEO of Pioneer Natural Resources, said bringing new oil wells online would take 18 to 24 months. He called for an “all-of-the-above” approach to domestic energy production.
“This approach requires a combined effort to support the transition to renewable energy, including nuclear power and domestic production of minerals and materials for batteries, while concurrently improving our nation’s infrastructure and strengthening the ability of U.S. operators to responsibly produce the fossil fuels that will be critical to maintaining the world’s economies and way of life during the transition period,” Sheffield said.
Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita