President Joe Biden on Wednesday called on U.S. oil refining companies to produce more, saying they need to help alleviate the burden of high prices on consumers.
“At a time of war – historically high refinery profit margins being passed directly onto American families are not acceptable,” the president said in a letter to oil companies including Exxon Mobil and Chevron.
“[C]ompanies must take immediate actions to increase the supply of gasoline, diesel, and other refined product,” the letter added.
Biden’s call comes as sky-high energy costs add to inflationary concerns across the economy. The national average for a gallon of gas crossed $5 over the weekend for the first time on record, according to AAA.
The national average now stands at $5.014, which is 54 cents more than a month ago, and $1.94 more than last year.
Refiners can’t just ramp up output, with utilization rates already above 90%. Additionally, some refiners are now being reconfigured to make alternate products like biofuel.
Refining capacity has dropped since the pandemic took hold, which is a factor in the rapid advance of fuel prices. Demand has returned as economies restart and people travel once again, but supply remains tight.
Loss of Russian refined products has exacerbated the imbalance, with Europe now looking elsewhere for fuel.
Biden said that his administration is prepared to use “all reasonable and appropriate Federal Government tools and emergency authorities to increase refinery capacity and output in the near term.”
Biden noted in his letter that the refining shortage is a “global challenge and global concern,” with around 3 million barrels per day of global capacity offline since the start of the pandemic.
Still, he pointed to the “unprecedented disconnect between the price of oil and the price of gas.”
“Since the beginning of the year, refiners’ margins for refining gasoline and diesel have tripled, and are currently at their highest levels ever recorded,” he said.
Biden noted that the last time oil was trading at $120 per barrel the average price of gas at the pump was about $4.25 per gallon.
Oil prices fell after Biden’s letter was released, with West Texas Intermediate, the U.S. benchmark, recently trading down more than 1% at $117.71.
The president’s letter was also addressed to global giants BP and Shell, as well as refiners Marathon Petroleum, Valero Energy and Phillips 66. Shares of Exxon, Chevron and the refiners were all down slightly in premarket trading.
“The crunch that families are facing deserves immediate action. Your companies need to work with my Administration to bring forward concrete, near-term solutions that address the crisis,” Biden said.
Still, there is no easy solution. John Kilduff, partner at Again Capital, said refiners are working at historically high level.
“There is nothing left to ramp up,” he said.
Kilduff noted that no new refineries have been built in decades, but existing units have been expanded. Prior to the pandemic, there had been excess refining capacity, which pressured profits.
“Years of sanctions on Venezuela and Iran, and now Russia, has more than contributed to the current situation,” he said.
The industry says the administration’s policies are to blame for the surge in prices.
“While we appreciate the opportunity to open increased dialogue with the White House, the administration’s misguided policy agenda shifting away from domestic oil and natural gas have compounded inflationary pressures and added headwinds to companies’ daily efforts to meet growing energy needs while reducing emissions,” Mike Sommers, president and CEO of the American Petroleum Institute, said Wednesday.
The industry group sent a letter to Biden on Tuesday outlining 10 steps the administration and Congress should take to tackle the energy crisis, including lifting development restrictions on federal lands and waters and accelerating LNG exports.
Biden’s action Wednesday is the latest move by the administration to show it’s taking action against rampant inflation. Higher prices have become a headache for the White House ahead of November’s midterm elections.
Biden has repeatedly called higher prices at the pump Putin’s tax, while also calling on U.S. producers to raise output. The messaging is at odds with the White House’s prior focus on reducing the U.S. fossil fuel output.
The administration has said corporations are prioritizing financial returns at the expense of Americans.
“Exxon made more money than God this year,” Biden said Friday.
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