Sen. Whitehouse’s New Price Gouging Claims Reveal a Misunderstanding of How Markets Work

Everything old is new again. This week, U.S. Senator Sheldon Whitehouse (D-RI) came back with a revised version of his spectacularly incorrect “price gouging” theory.

Speaking to E&E News about ExxonMobil’s and Chevron’s recently proposed acquisitions, Sen. Whitehouse made the bizarre claim that oil majors are looking for deals because of their “immense levels of price gouging,” saying:

“The consolidation that they’re accomplishing with their gouging proves that anything decent Big Oil has ever said about taking emissions seriously was a lie.”

But in the very next paragraph, an equity analyst for Morningstar rebutted Whitehouse, telling E&E News that the Senator’s claim portrays a “misunderstanding” of how global energy markets work:

“Any time you have high oil and gas prices, you have politicians make claims around gouging. But nothing has ever been found, and it portrays a misunderstanding of how the market works… No politicians were thanking Exxon and Chevron for negative prices during Covid.”

Price gouging allegations made by Sen. Whitehouse and other members of Congress are fringe positions that run counter to expert opinion. As the energy industry enters a period of transition and consolidation against the backdrop of a volatile global market, it’s important to remember:

  1. American energy producers cannot manipulate the price of oil, or gasoline.
  2. On the contrary, poor energy policy – like the Sen. Whitehouse’s proposed windfall profit tax – causes price spikes.
  3. American energy companies are using strong balance sheets to make historic investments that benefit consumers and the climate.

The experts agree – there’s no evidence of price gouging

Experts have repeatedly debunked the myth that individual American companies have the ability to manipulate market prices and are doing so for their own gain.

First, independent companies are responsible for producing the overwhelming majority of American oil and natural gas. Independent producers and global supermajors alike respond to the global market – when prices increase or decrease, producers are incentivized to produce more or less oil, ultimately leading to a healthy market equilibrium.

Given that the largest American producer controls just three percent of global supply, domestic companies don’t wield the power to manipulate prices for oil or refined fuels. In an article addressing this very topic last summer, leading economists with the Federal Reserve Bank of Dallas stated that “U.S. oil producers are in no position to control retail gasoline prices.”

Reporting on some Democrats’ campaign to cast blame on American oil companies for high household energy bills, Politico put it simply in a headline:

“Democrats blame oil companies for high fuel prices. But the facts don’t back them up.”

OPEC+, on the other hand, is using its consolidated power to enforce significant supply cuts that raise prices globally. Due to the fact that OPEC+ is a cartel that controls 40 percent of global oil supply and 60 percent of exports, it has the ability to manipulate prices and has been increasingly exercising its power to do so, at the expense of American consumers.

Bad policy, macro factors threaten to push prices up further

Across the world, geopolitical instability is making waves in the energy market as ongoing war in Ukraine and in Gaza destabilizes energy production, imports and exports, and global demand. Amidst these conflicts, the Biden administration continues to enact policies that limit American production and drive Americans further into the hands of our adversaries.

The latest target of President Biden’s antagonism towards the American oil and natural gas industry is the recently-announced offshore leasing program, which includes the lowest number of leases in the program’s history. In recent months, the White House has also withdrawn millions of acres of land in Colorado from oil and natural gas development, closed Alaska’s National Petroleum Reserve to drilling, and depleted the Strategic Petroleum Reserve to dangerous levels.

Each of these moves makes it more difficult and more costly to produce energy at home. But rather than impacting the demand side of the equation, the White House’s energy policies just push the country into dependence on foreign producers.

To make matters even worse, last year, Sen. Whitehouse, Sen. Bernie Sanders (I-VT), Rep. Ro Khanna (D-CA), and other radical lawmakers promoted a windfall profit tax, a destructive solution to the imaginary “price gouging” problem. As Energy In Depth has discussed at length, when enacted during previous energy price crises, windfall profit taxes have only resulted in greater reliance on foreign imports, higher prices for consumers, and underinvestment in domestic energy security.

Smart and environmentally sound investments

Exxon and Chevron’s recent acquisitions are likely to accelerate net-zero goals across the industry, contrary to Sen. Whitehouse’s claim that supermajors’ recent acquisitions are bad news for the environment. E&E News reports that the new scale afforded by the acquisitions will allow the newly combined companies to rapidly reduce emissions using technologies like electrified drilling rigs and new methane detection measures:

“After announcing their acquisition plans, both Exxon and Chevron said the deals would help them accelerate their net-zero emissions goals by allowing them to produce oil and gas with less waste.”

Exxon has already reduced methane emissions intensity by more than 50 percent across its operated assets and reduced flaring by more than 75 percent in the Permian Basin. As a result of the company’s acquisition of Pioneer Natural Resources, the resource-rich basin is well positioned for even more sweeping reductions in methane flaring.

Outside of the recent acquisitions that caught Sen. Whitehouse’s eye, major oil companies are also putting profits to work by acquiring and investing in renewable and low-emissions technologies as well. Serving as a testament to the value of American-based, investor-owned oil and natural gas companies, domestic producers are putting their profits to work in ways that benefit consumers and the climate.

Earlier this year, Exxon paid nearly $5 billion to acquire Denbury, the leading owner and operator of carbon dioxide pipelines, further establishing the company as a leader in carbon capture and removal technology. And through a joint venture with Talos Energy and Carbonvert, Chevron is developing the Bayou Bend CCS project, which is poised to be one of the largest carbon storage projects in the country.

Bottom Line: Just like clockwork, as energy prices rise due to poor energy policies and geopolitical factors, the same politicians that limit American companies’ ability to produce energy are pushing debunked price gouging allegations. Meanwhile, the American energy industry is putting profits to work and investing in state-of-the-art technologies needed to produce more affordable energy while lowering emissions.

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