I don’t know who needs to hear this, but it seems like the vast majority of the country — including many politicians — still suffer from some major misconceptions when it comes to oil and gas prices.
Let’s first talk about things that are true.
It is true that oil companies benefit from actions that increase the price of oil. Over the past couple of years, OPEC has taken actions that have increased the price of oil.
In April 2020, OPEC+, a group of 23 oil-producing countries, enacted a huge supply cut because of the drop in global oil demand associated with the Covid-19 pandemic. In fact, oil prices even turned negative at one point, and U.S. oil producers saw their share prices plunge. President Trump asked Saudi Arabia and Russia to intervene.
At that time, he tweeted: “Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!” Moments later he tweeted “Could be as high as 15 Million Barrels. Good (GREAT) news for everyone!”
Those cuts did happen, and that helped shore up oil prices in the months to follow. In fact, between April 2020 and January 2021 — Trump’s last nine months in office — the average monthly price of West Texas Intermediate rose from $16.55 to $52.00 (source), an increase of 214%. Oil prices would continue to increase throughout 2021 as demand returned to normal.
ExxonMobil and other U.S. oil producers benefitted from this increase.
Then, in February 2022 Russia invaded Ukraine. The U.S. and some other countries made the decision to stop importing Russian oil. Oil prices soared. But that “oil” was primarily in the form of products like diesel and gasoline, and it supplied 7% of U.S. imports in 2021. This caused a significant disruption with U.S. refiners, and product prices soared along with refinery margins.
Oil producers benefitted from the rise in oil prices following Russia’s invasion, and refiners benefitted from the rise in product prices. ExxonMobil owns both oil production and refinery operations, and they benefitted from these price rises.
It’s perfectly legitimate to discuss how ExxonMobil benefitted from the OPEC production cuts and Russia’s invasion of Ukraine. It is a fact that the U.S. energy industry has benefitted, and that is at the expense of U.S. consumers. I understand why people are angry about this, but their anger is misdirected.
What people get wrong is that ExxonMobil doesn’t have any control over this. In 2020, ExxonMobil had to sell oil for less than it cost to produce it. They are at the mercy of the markets, which is why they lost $22.4 billion in 2020.
Think about it. Do you think ExxonMobil was just being generous in 2020, and decided to sell oil for under $20 a barrel? And in 2022 they got really greedy and decided to sell it for over $100 a barrel? No, because that’s not the way oil is sold.
The reason ExxonMobil can’t influence oil prices is they don’t produce enough oil to significantly impact the global oil supply picture. OPEC — with 35% of the world’s 2021 oil production — can substantially impact that picture. Add in the OPEC+ coalition — which Russia is a part of — and it’s close to half of global oil production.
ExxonMobil doesn’t even produce 3% of the world’s oil. If they restrained production in order to try to influence pricing, it would only cost them money.
So, you can be angry that ExxonMobil is profiting at your expense. But just understand it’s not because they suddenly decided to gouge you. They have no control over this, which is pretty obvious when you look at their quarterly financial reports over the past decade.