Is Biden right that oil companies can lower prices at the pump but won’t? (1 Viewer)

[timschochet]

https://www.politico.com/news/2022/07/03/kirby-biden-gas-prices-00043876

Biden is calling on oil companies to lower their prices at the pump. Jeff Bezos, among others, says that Biden doesn’t understand market forces. Others disagree. 

This thread is less about Biden and more about the question: can oil companies lower prices themselves without suffering financial loss? Are they gouging us, which seems to be what Biden is implying? 

 

[Philo Beddoe]

https://www.politico.com/news/2022/07/03/kirby-biden-gas-prices-00043876

Biden is calling on oil companies to lower their prices at the pump. Jeff Bezos, among others, says that Biden doesn’t understand market forces. Others disagree. 

This thread is less about Biden and more about the question: can oil companies lower prices themselves without suffering financial loss? Are they gouging us, which seems to be what Biden is implying? 

If we confiscated every penny of profit from the oil companies, how much would that lower the price of a gallon of gas? Meanwhile, Pfizer raised the price of their Covid shot by 27% and the government gladly hands them our money.

 

[timschochet]

If we confiscated every penny of profit from the oil companies, how much would that lower the price of a gallon of gas? Meanwhile, Pfizer raised the price of their Covid shot by 27% and the government gladly hands them our money.

So I take it you’re a no? The Pfizer argument seems irrelevant. 

 

[Boston]

The most impressive thing about the Biden presidency is his steadfast ability to blame others for every single issue in this country.

 

[sho nuff]

If we confiscated every penny of profit from the oil companies, how much would that lower the price of a gallon of gas? Meanwhile, Pfizer raised the price of their Covid shot by 27% and the government gladly hands them our money.

Pfizer upping it doesn’t excuse gas companies.  There is definitely a thread worthy topic in pharma making money too.

 

[timschochet]

The most impressive thing about the Biden presidency is his steadfast ability to blame others for every single issue in this country.

But is he right? 

 

[sho nuff]

The most impressive thing about the Biden presidency is his steadfast ability to blame others for every single issue in this country.

Seems less impressive since it is a normal occurrence from Washington.

Im betting there is truth (not about individual gas stations) but the big companies overall banking money now and not caring if prices are high as people are still willing to pay them.  Any pain they know will increase chances of an administration friendlier to them…so they can get less regulation and make even more in the future.  They are counting in that.  Not because its right or whats good for anyone other than those invested in them.

 

[Mile High]

.  Any pain they know will increase chances of an administration friendlier to them…so they can get less regulation and make even more in the future.  They are counting in that.  

Bingo.

 

[2Squirrels1Nut]

If we confiscated every penny of profit from the oil companies, how much would that lower the price of a gallon of gas? Meanwhile, Pfizer raised the price of their Covid shot by 27% and the government gladly hands them our money.

I used to listen to Rush Limbaugh too. 

 

[Juxtatarot]

Of course they could but they shouldn’t as for profit companies. If Biden isn’t willing to do something with the force of law, he should shut up about it.

 

[timschochet]

Of course they could but they shouldn’t as for profit companies. If Biden isn’t willing to do something with the force of law, he should shut up about it.

Biden is trying to convince Congress and the states to suspend all gas taxes for the time being- might help some…

 

[Juxtatarot]

I don’t think they should. High gas prices curbs demand and eventually will help our inflation problem.

 

[2Squirrels1Nut]

https://www.politico.com/news/2022/07/03/kirby-biden-gas-prices-00043876

Biden is calling on oil companies to lower their prices at the pump. Jeff Bezos, among others, says that Biden doesn’t understand market forces. Others disagree. 

This thread is less about Biden and more about the question: can oil companies lower prices themselves without suffering financial loss? Are they gouging us, which seems to be what Biden is implying? 

Is Biden right?  

My best GUESS is "kind of".   Now oil is traded on world markets so no matter how much some complain about obstacles to drilling on US land, it doesn't matter unless you want to socialize(!!!!) the energy sector.  Still, oil producers in the US have gotten smart and not flooding the market when prices increase.  If they did, I think prices would come down some. 

ETA

It also doesn't help that there has only been one refinery built in the US since I had hair (70's).

 

[Stealthycat]

the bigger question is what has Biden done to impact oil companies?

with 50 years experience, you'd think he'd know exactly what makes oil/energy run wouldn't ya ?

Biden is anti-oil, he ran a campaign on it, he enacted EO's and moves that hurt oil and it has contributed bigly to the gas prices at the pumps

Biden and the puppet masters know what they're doing, make no mistake. 

 

[uwillbsoon]

I'd rather they spend whatever they'll lose in gas taxes on alternatives to oil and keep the gas tax as is. Whether that's bigger incentives for electric or investments in mass transit, let's invest in things that leaves us more resilient.

But that's long-term thinking. We don't do that.

 

[2Squirrels1Nut]

I'd rather they spend whatever they'll lose in gas taxes on alternatives to oil and keep the gas tax as is. Whether that's bigger incentives for electric or investments in mass transit, let's invest in things that leaves us more resilient.

But that's long-term thinking. We don't do that.

We are always prisoners of the moment aren't we?  The parties haven't really worked together for the betterment of the country in what, 30 years?  It's not amazing that gas prices are blamed on Biden either.  Inflation is a worldwide problem.  It would be like blaming Trump for Covid existing. 

 

[Juxtatarot]

Biden is trying to convince Congress and the states to suspend all gas taxes for the time being- might help some…

They shouldn’t do that either. 

 

[Philo Beddoe]

I used to listen to Rush Limbaugh too. 

So did 40 million other Americans. Remember when the leftist media blamed him for the Oklahoma City bombing?

 In 2021, about 134.83 billion gallons (or about 3.21 billion barrels)1 of finished motor gasoline were consumed in the United States, an average of about 369 million gallons per day (or about 8.80 million barrels per day).

Here is the net income in 2021 for the five major oil companies that drill for oil, refine it and sell refined products like gasoline and other fuels.

Exxon Mobil Corp. $23 billion

Shell Oil Co./Motiva Enterprises LLC $19 billion

Chevron Corp. $16 billion

BP North America $13 billion

ConocoPhillips/Phillips 66 $8 billion

TOTAL $79 billion

Im bad at maths how much does that lower the cost at the pump? 

 

[dozer]

The most impressive thing about the Biden presidency is his steadfast ability to blame others for every single issue in this country.

If you follow this thread I think you may learn something about how the price of gasoline at the pump is determined.

 

[Max Power]

This thread is less about Biden and more about the question: can oil companies lower prices themselves without suffering financial loss? Are they gouging us, which seems to be what Biden is implying? 

Yes and No.  Can they lower the price... Yes.  Will they suffer a financial loss... Also yes. 

The problem from the O&G CEO perspective is that the Biden administration is committed to phasing out oil and gas.  The fact that oil companies can't get any long term guarantees or stability means they are less likely to invest in themselves or grow current operations. 

You're not going to throw a ton of money into an old car to make it run better if you've already committed to a new car.  This is the same principle. 

 

[Maurile Tremblay]

Biden's critics are dumb for thinking the president sets gas prices.

Biden is dumb for thinking oil companies set gas prices.

Market forces set them. Supply and demand. As long as multiple oil companies (and gas stations) compete with each other, prices at the pump will be what they're supposed to be. High prices are a signal to drive less. (And to oil companies, they may be a signal to drill more.) These are important signals.

Market prices are good and shouldn't be screwed with by the government.

 

[timschochet]

Biden's critics are dumb for thinking the president sets gas prices.

Biden is dumb for thinking oil companies set gas prices.

Market forces set them. Supply and demand. As long as multiple oil companies (and gas stations) compete with each other, prices at the pump will be what they're supposed to be. High prices are a signal to drive less. (And to oil companies, they may be a signal to drill more.)

Market prices are good and shouldn't be screwed with by the government.

I have always believed in your last sentence as a general rule. But oil companies have received government benefits (subsidies, tax write offs) for decades. Would it be wrong, therefore to argue that they are already outside of the market system and therefore suitably subject to government involvement? I ask because I don’t know the answer. 

You also wrote “so long as multiple oil companies (and gas stations) compete with each other.” But are they? In California I’m not seeing a big difference in prices at the different gas stations. ARCO and Costco are always a few cents less but that’s about it. The others (Chevron, Shell, Mobil, etc.) are all roughly the same price. So I’m not really seeing the sort of competition in prices that a free market should theoretically provide. 

 

[Insomniac]

I have always believed in your last sentence as a general rule. But oil companies have received government benefits (subsidies, tax write offs) for decades. Would it be wrong, therefore to argue that they are already outside of the market system and therefore suitably subject to government involvement? I ask because I don’t know the answer. 

You also wrote “so long as multiple oil companies (and gas stations) compete with each other.” But are they? In California I’m not seeing a big difference in prices at the different gas stations. ARCO and Costco are always a few cents less but that’s about it. The others (Chevron, Shell, Mobil, etc.) are all roughly the same price. So I’m not really seeing the sort of competition in prices that a free market should theoretically provide. 

Maybe we can get the economics professor to comment.

From my much more limited background I would expect a generic product like gasoline where the consumer has multiple choices should result in very similar prices at the different stations. 

 

[Gopher State]

https://www.politico.com/news/2022/07/03/kirby-biden-gas-prices-00043876

Biden is calling on oil companies to lower their prices at the pump. Jeff Bezos, among others, says that Biden doesn’t understand market forces. Others disagree. 

This thread is less about Biden and more about the question: can oil companies lower prices themselves without suffering financial loss? Are they gouging us, which seems to be what Biden is implying? 

Biden’s always been anti oil.  He is just playing the blame game again, it’s Putin’s fault, big oil’s fault, he never accepts responsibility for anything that’s going wrong in America.  His own party is starting to bail on him AOC, and now senator Kelly running adds that he doesn’t agree with Biden on issues.  If he was serious about energy costs, he would of suspended the gas tax a long time ago, considered at least a reduction of American exports of oil.  He should of pressured his good friend  the prince to increase production as well.  I guess when it comes to Biden his approval rating of 38 percent sums it up best!

 

[timschochet]

Maybe we can get the economics professor to comment.

From my much more limited background I would expect a generic product like gasoline where the consumer has multiple choices should result in very similar prices at the different stations. 

In normal times. But if prices go way up as they have now, usually there are one or more companies that decide to keep their prices low in order to crush the competition and hopefully corner the marketplace. That in turn forces other companies to lower their prices as well. At least that’s how it’s supposed to work on paper. 

But it’s not working out that way. So I question whether we have more of an oligopoly than an actual market? 

 

[timschochet]

Biden’s always been anti oil.  He is just playing the blame game again, it’s Putin’s fault, big oil’s fault, he never accepts responsibility for anything that’s going wrong in America.  His own party is starting to bail on him AOC, and now senator Kelly running adds that he doesn’t agree with Biden on issues.  If he was serious about energy costs, he would of suspended the gas tax a long time ago, considered at least a reduction of American exports of oil.  He should of pressured his good friend  the prince to increase production as well.  I guess when it comes to Biden his approval rating of 38 percent sums it up best!

All of this may be reasonable criticism though I disagree with a lot of it. None of it, though, has anything to do with the question raised in this thread. 

 

[BladeRunner]

So did 40 million other Americans. Remember when the leftist media blamed him for the Oklahoma City bombing?

 In 2021, about 134.83 billion gallons (or about 3.21 billion barrels)1 of finished motor gasoline were consumed in the United States, an average of about 369 million gallons per day (or about 8.80 million barrels per day).

Here is the net income in 2021 for the five major oil companies that drill for oil, refine it and sell refined products like gasoline and other fuels.

Exxon Mobil Corp. $23 billion

Shell Oil Co./Motiva Enterprises LLC $19 billion

Chevron Corp. $16 billion

BP North America $13 billion

ConocoPhillips/Phillips 66 $8 billion

TOTAL $79 billion

Im bad at maths how much does that lower the cost at the pump? 

Is that actual profit?  Or just what they brought in total?  If total, what was the actual profit?

 

[IvanKaramazov]

It's honestly embarrassing that our president thinks that commodity markets work this way.

There are industries where firms have quite a bit of market power, but the crude oil market and the retail gasoline market aren't among them.  Your local Shell station is not anything like OPEC.

 

[SoBeDad]

I have always believed in your last sentence as a general rule. But oil companies have received government benefits (subsidies, tax write offs) for decades. Would it be wrong, therefore to argue that they are already outside of the market system and therefore suitably subject to government involvement? I ask because I don’t know the answer. 

You also wrote “so long as multiple oil companies (and gas stations) compete with each other.” But are they? In California I’m not seeing a big difference in prices at the different gas stations. ARCO and Costco are always a few cents less but that’s about it. The others (Chevron, Shell, Mobil, etc.) are all roughly the same price. So I’m not really seeing the sort of competition in prices that a free market should theoretically provide. 

I got gas for the first time in a month yesterday. Luckily, I walk to work. I noticed a difference in prices based mainly on location, as I drove through prime areas like near downtown Miami, and exits off of I-95 which are perhaps easier for gas delivery and have cheaper leases. On the I-95 exit to 163 street, i passed by about 5 different gas stations with the same $4.41 per gallon. I don't see that with food prices at Publix and Walmart. Publix has the same prices at stores in good and bad areas. Seems like a coordination among gas station owners, i guess because the prices are in big numbers at each station. 

What's happening with the record profits at Shell, BP, and others? Does Costco lose money on gas?

 

[John123]

It's honestly embarrassing that our president thinks that commodity markets work this way.

There are industries where firms have quite a bit of market power, but the crude oil market and the retail gasoline market aren't among them.  Your local Shell station is not anything like OPEC.

He doesn't.  He's pandering to people like Tim who might believe him.

 

[SoBeDad]

It's honestly embarrassing that our president thinks that commodity markets work this way.

There are industries where firms have quite a bit of market power, but the crude oil market and the retail gasoline market aren't among them.  Your local Shell station is not anything like OPEC.

Biden is asking for the oil companies to help out a little. It's mostly political posturing until the market pressures reduce prices. He's not proposing a government price freeze like Nixon did with disastrous results about 50 years ago. 

 

[Maurile Tremblay]

I have always believed in your last sentence as a general rule. But oil companies have received government benefits (subsidies, tax write offs) for decades. Would it be wrong, therefore to argue that they are already outside of the market system and therefore suitably subject to government involvement? I ask because I don’t know the answer. 

You also wrote “so long as multiple oil companies (and gas stations) compete with each other.” But are they? In California I’m not seeing a big difference in prices at the different gas stations. ARCO and Costco are always a few cents less but that’s about it. The others (Chevron, Shell, Mobil, etc.) are all roughly the same price. So I’m not really seeing the sort of competition in prices that a free market should theoretically provide. 

Yes, it would be wrong to argue that they're outside the market system.

I don't know why you'd expect to see prices vary significantly in a competitive market for a commodity.

 

[timschochet]

It's honestly embarrassing that our president thinks that commodity markets work this way.

There are industries where firms have quite a bit of market power, but the crude oil market and the retail gasoline market aren't among them.  Your local Shell station is not anything like OPEC.

He’s not attacking the local Shell station. He’s criticizing the oil companies. 

 

[crackattack]

Yes. I believe oil companies could lower prices but won't.

 

[John123]

He’s not attacking the local Shell station. He’s criticizing the oil companies. 

So what does he mean when he says:

My message to the companies running gas stations

?

 

[Philo Beddoe]

Is that actual profit?  Or just what they brought in total?  If total, what was the actual profit?

Profit from fuel products

 

[timschochet]

So what does he mean when he says:

?

I assume he means the oil companies. not the individual operators. 
 

And as far as Ivan asserting that it’s embarrassing that a President should say this, there are many people that agree with him, including some very well respected economists like Paul Krugman. I would also add that I personally know an individual owner and operator of two ARCO stations, a very conservative guy who voted for Trump twice, who agrees with Biden about this. However I’m not sure I do. That’s why I raised the question. But I’m not convinced that it’s an embarrassing argument. 

 

[Maurile Tremblay]

I assume he means the oil companies. not the individual operators. 
 

And as far as Ivan asserting that it’s embarrassing that a President should say this, there are many people that agree with him, including some very well respected economists like Paul Krugman. I would also add that I personally know an individual owner and operator of two ARCO stations, a very conservative guy who voted for Trump twice, who agrees with Biden about this. However I’m not sure I do. That’s why I raised the question. But I’m not convinced that it’s an embarrassing argument. 

I just spent some time looking through Krugman's Twitter feed and googling his articles. I found no evidence of him saying anything like what Biden is saying.

Here he is correctly explaining that gas prices depend on the global market for crude oil: https://www.twincities.com/2022/03/18/paul-krugman-lies-damned-lies-and-gasoline-prices/

 

[djmich]

I’m not a gas industry expert but I believe that as the price of the underlying commodity rises the gross profit of the energy companies will rise if they are able to keep their margins constant.  
 

They could of course decrease their margins and make the same $ dollar profit as before…but at a lower return on capital.

They have little incentive to do this unless market forces drive them to.  Personally I don’t think this is the time/place for the govt to get involved.  Maybe if they want to implement a gas tax holiday.  Generally when you #### with the natural supply/demand balance there are unintended consequences that the geniuses in charge didn’t think through.

 

[IvanKaramazov]

He’s not attacking the local Shell station. He’s criticizing the oil companies. 

He had a tweet out a few days ago asking local dealers to lower their prices.  (I understand that Biden probably has somebody running his Twitter account for him, but still.)

 

[timschochet]

I just spent some time looking through Krugman's Twitter feed and googling his articles. I found no evidence of him saying anything like what Biden is saying.

Here he is correctly explaining that gas prices depend on the global market for crude oil: https://www.twincities.com/2022/03/18/paul-krugman-lies-damned-lies-and-gasoline-prices/

I thought I heard him agree with it on TV. I was rushed so it may have been somebody else. But there ARE some economists who agree with him. 

 

[Rich Conway]

He’s not attacking the local Shell station. He’s criticizing the oil companies. 

So what does he mean when he says:

My message to the companies running gas stations

?

At many gas stations, the oil company sets the price, not the local station owner.  I have friends that own the local station in town.  They have confirmed that they have very little leeway on price; that direction comes from the company.  At best, they can delay an increase/decrease by a week.

 

[Navin Johnson]

I’m not a gas industry expert but I believe that as the price of the underlying commodity rises the gross profit of the energy companies will rise if they are able to keep their margins constant.  
 

They could of course decrease their margins and make the same $ dollar profit as before…but at a lower return on capital.

They have little incentive to do this unless market forces drive them to.  Personally I don’t think this is the time/place for the govt to get involved.  Maybe if they want to implement a gas tax holiday.  Generally when you #### with the natural supply/demand balance there are unintended consequences that the geniuses in charge didn’t think through.

The government has been subsidizing them for decades.  Now it's time for the government not to be involved?

 

[djmich]

The government has been subsidizing them for decades.  Now it's time for the government not to be involved?

When the government provided these subsidies did they obtain agreement to set prices on behalf of the oil companies at a future date?

Gas taxes are significant, if the government wants to reduce the price of gas they can do that directly.

But my point was really that artificially upsetting the demand/supply balance just may be poor policy for a number of reasons (one being you exacerbate the supply issue further)

 

[Navin Johnson]

When the government provided these subsidies did they obtain agreement to set prices on behalf of the oil companies at a future date?

Gas taxes are significant, if the government wants to reduce the price of gas they can do that directly.

But my point was really that artificially upsetting the demand/supply balance just may be poor policy for a number of reasons (one being you exacerbate the supply issue further)

If there was a supply issue wouldn't that also be reflected in the price of crude?

 

[the moops]

He had a tweet out a few days ago asking local dealers to lower their prices.  (I understand that Biden probably has somebody running his Twitter account for him, but still.)

It was a terrible worded tweet though, so who knows - but it does say "companies". I don't think he was referring to mom and pop gas station owners but rather the corporations who own the chains

My message to the companies running gas stations and setting prices at the pump is simple: this is a time of war and global peril. Bring down the price you are charging at the pump to reflect the cost you’re paying for the product. And do it now.

 

[djmich]

If there was a supply issue wouldn't that also be reflected in the price of crude?

Yes, among other things

 

[Rich Conway]

At many gas stations, the oil company sets the price, not the local station owner.  I have friends that own the local station in town.  They have confirmed that they have very little leeway on price; that direction comes from the company.  At best, they can delay an increase/decrease by a week.

This only applies to affiliated stations (e.g. Mobil, Shell, etc), of course.  Independent stations set their own prices.

 

[djmich]

This only applies to affiliated stations (e.g. Mobil, Shell, etc), of course.  Independent stations set their own prices.

Right and the idea that Biden is speaking only to the corporates is just another example of people not understanding how a market works.

When Shell corporate lowers their prices, the independent mom and pop has to lower as well or lose customers.  So the independents don’t just get to not participate.

 

[Navin Johnson]

Yes, among other things

Behind a paywall but, if that is the case, why are gas prices 50% higher than in 2008 when crude was 50% higher than it is now?