WASHINGTON — At a hearing on April 6, members of the U.S. House of Representatives Energy and Commerce Subcommittee on Oversight and Investigations questioned executives of several oil companies concerning high gasoline prices, suggesting that they are gouging motorists.
The hearing, Gouged at the Gas Station: Big Oil and America’s Pain at the Pump, followed on
President Joe Biden announcement on March 31 of a plan to address high gasoline prices—which he blamed on pandemic oil demand recovering faster than supply and Russian President Vladimir Putin’s war on Ukraine—by increasing the supply of oil immediately through a release from U.S. Strategic Petroleum Reserve (SPR). He also went after oil companies, citing record profits and unused federal leases.
Here are the details …
Looking for Answers
“We are here today to get answers from the Big Oil companies about why they are ripping off the American people,” Committee on Energy & Commerce Chairman Frank Pallone Jr. (D-N.J.) said in prepared remarks for the hearing. “At a time of record profits, Big Oil is refusing to increase production to provide the American people some much needed relief at the gas pump. Instead, they are buying back their stock at an estimated cost of about $40 billion this year. Big Oil is lining their pockets with one hand and taking billions in taxpayer subsidies with the other. Meanwhile, the American people are getting ripped off as these companies choose to keep production low so that their own profits stay high. The American people are understandably fed up with these prices, and we are here today to demand answers from Big Oil about when they will finally start providing the American people some relief.”
Rep. Diana DeGette (D-Colo.), chair of the subcommittee, in prepared remarks said, “If the price of gas is driven by the global market, why is the price of oil coming down but the price at the pump is still near record highs?”
Rep. Morgan Griffith (R-Va.), the Republican leader of the subcommittee, called the hearing “the latest venue for an exercise of political theater. … Democrats convened their hearing … to berate oil and gas companies for not meeting current demand, but last October in a Committee on Oversight and Reform hearing, they berated oil and gas companies for producing too much.”
He also blamed high fuel prices on Biden’s decision to cancel the Keystone XL pipeline that would have imported crude from Canada. “It is impossible to generate confidence or invest in production today when future production is clearly being blocked by this administration,” Griffith said.
David Lawler, chairman and president of bp America Inc., Chicago; Michael Wirth, chairman and CEO of Chevron Corp., San Ramon, Calif.; Richard Muncrief, president and CEO of Devon Energy Corp., Oklahoma City; Darren Woods, CEO of ExxonMobil Corp., Houston; Scott Sheffield, CEO of Pioneer Natural Resources Co., Irving, Texas; and Gretchen Watkins, president of Shell USA Inc., Houston, testified virtually before the subcommittee on April 6. Lieutenant General H.R. McMaster, U.S. Army, retired, and senior fellow at the Hoover Institution at Stanford University, Stanford, Calif., also testified.
U.S. gasoline prices have surged since Russia’s invasion of Ukraine in February and after Western countries imposed sanctions on Russia’s energy exports. Pump prices hit a record of $4.33 a gallon on March 11, and since then have slipped about 4% to $4.16 a gallon, according to a Reuters report, citing AAA.
In the same time frame, U.S. gasoline futures have fallen more than 7% to $3.07 a gallon as international crude prices have dropped more steeply, more than 9%, to about $102.11 a barrel, it said.
“The retail price of fuel is set competitively, based on product cost and conditions in specific local markets,” BP Chairman and President David Lawler said in prepared remarks. “The market price of crude oil is the largest determinant of the price, but it is not the only component. Refining costs and capacity, margins, transportation costs and other inputs also affect the wholesale price, as well as the costs and margins charged by distributors and retailers. Taxes and other costs levied by government at the local, state and federal levels also affect the retail price.”
“I have seen statements in the press suggesting that Chevron and other oil and gas companies are responsible for the increase in fuel prices, Chairman and CEO Michael Worth said in prepared remarks. 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.”
“Changes in the price of crude oil do not always result in immediate changes at the pump. This mismatch can occur because replacement cost based on current market prices is what typically drives prices for consumers. And while the price of crude oil might dip more quickly, it frequently takes more time for competition among retail stations to bring prices back down at the pump.
“This phenomenon is exacerbated in today’s context of diverse retail fuel sales options. In the United States, nearly all of the nation’s 150,000 gas stations are independently owned businesses that are not operated directly by oil companies. These independent businesses take a number of factors into account when setting and changing prices, including local conditions, perceptions of future costs, supply considerations and competition. As a result, while changes in the price of crude oil reflect the global cost of that product, and are influenced by demand, supply, inventory, geopolitical events and other factors, the prices customers are paying at the pump are often influenced by additional local factors that vary in each community or even at each station. The result is two separate products—crude oil and gas prices—that do not always move in tandem.”
“The uncertainty of supply in a tight market with growing demand leads to significant price volatility, which is what we are seeing today,” ExxonMobil Chairman and CEO Darren Woods said in prepared remarks. “Many of us recall the Arab oil embargo of the early 1970s, the long lines and rapidly rising prices resulting when around 2 million barrels of oil a day were withdrawn from global markets. It was a disruption caused by a sudden and significant drop in supply.”
“More recently, during the early days of the pandemic, the opposite situation occurred. A sudden drop in demand sent oil prices crashing to the point where they actually went negative. Many in our industry sustained huge losses, many others went out of business. The resulting reduction in industry investments laid the foundation of today’s markets and available supply. … No single company sets the price of oil or gasoline. 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.”
“There are more than 13,000 service stations in the United States that carry the Shell brand,” Shell USA president Gretchen Watkins said in prepared remarks. “We are very proud of these stations and their operators, but Shell neither controls nor owns these stations. Although they possess a license to carry our brand, nearly all Shell retail service stations are independently owned and operated in your communities. Each of these independent businesses is responsible for setting the local retail price of gasoline within the relevant competition and consumer protection regulatory framework. Shell’s wholesale gasoline prices are defined by the markets in which we operate, taking into account the costs of the refined fuel that we produce and acquire for distribution to wholesalers. When the price at the pump goes up, that increase is driven by higher costs earlier in the supply chain in the costs of crude oil, refining and distribution. Additionally, the price at the pump reflects local market conditions, such as local wages, salaries and benefits, lease payments and overhead and state and local fees and taxes.”
Click here to watch the subcommittee hearing and to read full prepared remarks and testimony.