More Proof of Biden’s Weak Position: Tasks FTC to Investigate Oil & Gas Companies in Gambit to Rein in High Prices

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Lordie, there is so much wrong with Biden dispatching the FTC to try to intimidate oil and gas companies into lowering prices at the pump that it’s hard to know where to begin.

This move is an admission of weakness. First, it does not look presidential. In the bad old days of say LBJ or Nixon, CEOs would have been jawboned. They would have been told to come to the White House to get a tongue-lashing. Even though that probably wouldn’t have worked or not worked much (the perps might make some eyewash level concessions), the spectacle of the President calling miscreant executives in to ‘splain themselves is good optics. The President is arm-wrestling mano-a-mano with big bad business! Godzilla v. Mothra!

I assume one reason Presidents no longer go this route is that the CEOs might not show up. That’s the cost of the country moving to the right is that Corporate America gets way more deference than it deserves.

Second, sending the FTC after Big Energy not only almost certainly won’t work, it’s also unlikely to generate much in the way of helpful press coverage after this opening salvo. The beef as presented in the White House letter and in press summaries is that oil prices have dropped 5% in the past month while gas prices at the pump have gone up 3%. The Administration is alleging “potential illegal activity” and demanding that the FTC investigate.

Biden’s approval ratings suck. One contributing factor is that consumers are seeing pretty hefty price increases on things they buy most often, food and gas. But just because prices have gone up does not mean the increases are not defensible. The big reason for the increase is the jump in oil prices due to Covid-lockdown-induced price plunges unwinding themselves and then some. Muhamed bin Salman has also given up on his bright idea of trying to punish Russia by flooding the market with oil. So OPEC’s improved price discipline is also playing a role.

Another factor at the margin is that US oil production is about 12% below its pre-Covid peak.

Biden’s case, to the extent he has one, seems to be that oil companies, particularly his named baddies Exxon and Chevron, are making lots of money and buying back stock rather than being nice to consumers and not charging what the market will bear.

So why has Biden not sent the FTC after drug companies who have spent more on buybacks (and marketing) than R&D, and keep jacking prices to the moon, yet whinge that they need to charge high prices for all that R&D that they are mainly not doing (recall that the NIH and other government agencies pay for a ton of basic research as well as applied research, yet demand pretty much nothing back for all these subsidies). Is it that drugs are patent protected? Or that the health care players have long spent more on lobbying than any other industry?

Some of the reasons why any FTC action is likely to go nowhere:

Apparent lack of a viable legal theory. The White House letter harrumphs about anti-competitive behavior. The bar for that in FTC is very high, and it means egregious conduct like price-fixing and exclusive dealing contracts. There is zero evidence that anything of the sort is happening here. But Brian Deese of the National Economic Council, had written FTC chair Lina Khan in August demanding that the agency act on any collusion in the US petrol market.1

Failure of past efforts to have the FTC bully Big Oil into moderating prices.

Absence of a long-standing abuse. The divergence between the oil price decline and the increase at the pump has been operative for only about a month. That doesn’t prove much. And the energy players might have justifications for keeping this divergence going, like scarcity of truckers affecting deliveries to retailers.

In fact, the Wall Street Journal points out that while this pattern is atypical, it is far from unheard of:

ClearView Energy Partners, an independent research firm, found that retail gasoline prices were closely correlated with unfinished gasoline prices over the last 10 years, but sometimes diverged. The firm found 13 instances over the past decade where monthly prices for unfinished gasoline went down while retail gasoline prices went up…

Rapidan Energy Group, a research and consulting firm, analyzed the disparity between unfinished gasoline and retail pump prices cited in Mr. Biden’s letter and said the difference wasn’t out of the normal range. Unfinished gasoline requires blending with other liquids to be suitable for use in spark-ignition engines, according to the U.S. Energy Information Administration.

The Financial Times peanut gallery was caustic. For instance:

What actually is the complaint? That big oil, under stranded asset and ROCE pressure, got out of shale oil/gas and took its drill baby drill cash with it and has returned proceeds to investors? The idea of a falling supply but just enough availability to moderate prices is truly hilarious.

Captain Planet
So the US rejected mass public transport in favour of the automobile decades ago. It then builds the biggest road network on the planet with taxpayer money, but also limits its own production of petroleum.

Prices are therefore heavily dependent on what US “partners” decide.

Does the right hand know what the left hand is doing? Confusing stuff.

Finally, some capitalists in the comment section of the FT. Where are the usual ESG folks? They should be rejoicing when gasoline is $5.00 a gallon. How about $10? After all, high prices should accelerate the demand for alternative, “clean” energy. But when these hipsters are hit in the pocketbook idealism goes out the window.

I am all for transitioning to alternatives, but this change will take be incremental. Fossil fuel production in America involves environmental regulation. It is doubtful that fossil fuel production in Saudi Arabia or Russia entails much environmental scrutiny. Yet, President Biden will do everything he can to stop production and transportation in the US while begging the worst energy polluters in the Middle East to increase supply.

The hypocrisy is maddening.

Inability to have an impact near term. All Biden has done is gin up an investigation. Even if the FTC actually could make a case, it would take too long to give Biden relief any time soon.

A different set of issues is that higher priced gas is exactly what you want if you want to save the planet. Carbon taxes were a hot topic at COP26, and moves in that direction would increase fossil fuel prices, including gas. So Biden is engaging in climate cakeism, wanting to win points from climate change activists via cancelling the permit for the Keystone XL pipeline and restricting drilling on Federal land (although then reversing that policy post COP26 by approving a huge new lease for drilling in the Gulf of Mexico).

So it’s obvious that Biden’s energy/climate policy is reactive, and averse to taking even mildly tough measures to wean consumers off their beloved gas while finding ways to reduce the pain for poor and lower income households. And if he’s going to make those big bad oil companies his whipping boys, he needs to be able to inflict pain, not just harrumph.

1 Without belaboring details, there are all sorts of ways that producers/sellers in a market signal on pricing that fall way way below the level of collusion. One bank or airline can increase prices. Others may or may not follow. There may be more complicated patterns, like certain big market participants might have to validate a price rise for prevailing prices to move, but this isn’t a process of men meeting in smoky conference rooms with Scotch. It’s done with public price changes and the knowledge that everyone in the game is watching the action.

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  1. Louis Fyne

    An anecdote about the utilitarian waste in green subsidies olicies … a Tesla 3 (0% petrol use) has ~80 kWh of lithium-ion batteries.

    A 40 mpg, Toyota RAV4 hybrid (-40 to -60% petrol use) has <2 kWh of batteries.

    The same amount of batteries in one Tesla can be used in 40 Toyotas!

    What is better net?… one conventional driver switching to a Tesla and going petrol free or 40 drivers cutting their petrol use by 40+%. Or using average driver stats, 15,000 miles of Tesla petrol-free driving or 40 drivers x (0.60 x 15000 mi) = 360,000 miles of petrol-free driving.

    electric cars have an eventual place, but dollar for dollar and each kg of rare metal, other older tech delivers immesiate results

    math is boring, but Tesla is S3XY

    1. Fazal Majid

      Plug-in hybrid mileage ratings are a total greenwashing con, just like ethanol mandates. Actual emissions are 2.5x higher than the nominal ratings, and that’s in Europe where driving distances are considerably less than in the US.

      Consumers will make decisions based on the total cost of the vehicle, and the amazing progress in battery technology (90% price reduction in the last decade) mean battery-electric vehicles will reach price parity with internal-combustion cars by 2027, and have already reached parity with the plug-in hybrids that combine the worst of both worlds. My parents’ Volvo XC40 cost the same as my Tesla Model 3, but has a puny electric range of 15 miles vs. 300 for mine. Now they live in the outskirts of Paris and can do most of their trips on battery alone, but that’s not the case of most Americans.

      1. Altandmain

        Lithium ion prices actually increased this year.

        Whether or not this is a trend remains to be seen. But there’s no assurance that this may not be a trend.

        Personally I think that hydrogen is a better solution, but PHEV is a good transition. If lithium ion prices do not fall, the choice may be between PHEV and ICE with only the upper middle class able to afford An EV.

    2. PlutoniumKun

      Hybrid claims on efficiency have to be taken with a giant pinch of salt. Because of a lack of standardised comparisons, its much easier to fudge hybrid claims than with ICE or EV engines. They are only clearly more efficient in heavy traffic in urban areas (which is why taxi drivers love them). Arguably, they are worse in some scenarios, such as driving in areas with steep grades where the extra weight means more power is needed and the batteries are little use.

      Besides which, there are a lot of rare earths needed for ICE engine blocks, plus hybrids require electric drivetrains similar to EV’s. Arguably, hybrids require more rare earth minerals than EV’s – especially the Toyota drivetrain:

      The market-leading Prius uses large amounts of rare earth materials in its electric motors and batteries. Each engine uses 33lbs (15kg) of lanthanum and 2lbs (1 kg) of neodymium. Two other rare earth elements, terbium and dysprosium, are also added to the alloy to preserve neodymium’s magnetic properties at high temperatures.

      While most people have never heard of lanthanum, the rare metal plays a significant role in the Prius’s market-leading energy economy. Toyota plans to sell a million units of the Prius worldwide per year in the very near future and the issue of supply shortages is at the forefront of their business planning. While there is more lanthanum in the ground than silver or lead, extraction is prohibitively expensive and currently only China is able to achieve economies of scale in the lanthanum market. As a response, Toyota is looking at securing alternate supplies by buying into existing mines in Vietnam and exploring similar options in Canada

      Hybrids are far more complex to engineer too. They are no solution to anything.

      1. Louis Fyne

        with all due (which is alot) respect, i beg to differ.

        Toyota’s hybrid tech is 20+ years old and literally one of the most reliable powertrains on the planet, easily lasting 300,000+ miles for the past 15 years. (but the same can’t be used of American Big 3 efforts).

        Ironically/paradoxically, yes hybrid systems are more complex than an electric car. But they don’t require any additional infrastructure, are proven technology , and most importantly squeeze every bit of economy from the rare metals used.

        Most of a Tesla’s rare metals’ capabilities sit unused as the need or most drivers to travel >250 miles is low.

        again the math will change as battery tech improves, but right now hybrids deserve as much subsidies as a full-blown independent car, even more in my point of view.

        ymmv. and again, with all due respect

        1. PlutoniumKun

          I’m not denying that Toyota hybrids are good – I was driving one for a week over the summer (rental car), and I was impressed, although it consumed approximately the same amount of fuel on a similar (mostly rural) route of about 500 miles that I’d previously done with a VW Golf and before that with a Renault Captur (small SUV). I made the point about grades because I noted that fuel consumption seemed to rise very noticeably when I did a circuit around some local hills, although I didn’t do a comparison measurement. The Toyota wasn’t a Rav, although I’ve a memory of 20 years ago driving a company ICE Rav we had in my office at the time and it drank fuel at an alarming rate (nobody wanted to drive it because it took us weeks to get our fuel cost claim back from my company), so its good to see the hybrid Rav is so much better.

          I’ve no doubt they opened the way to more efficient cars, although Toyota have for some reason become one of the ‘bad guys’ in the car industry – actively working against EV’s, possibly because they bet big on fuel cells instead of batteries. I’m also fully on board with them being a very good transitional design for heavy urban use vehicles – as I said, taxi drivers here absolutely love them for their reliability and fuel efficiency and easy of driving. I just think that in overall environmental terms, they are just a marginal gain over ICE.

          My personal bugbear though is not the power system in cars – its the weight of vehicles. Its risen dramatically over the decades (contrast this with aircraft, trains or bikes, all of which are far lighter than before). A VW Mark 8 Golf now weighs something like 50% more than a 1970’s Mark I Golf. The reason we need such powerful engines is because the vehicles themselves are insanely heavy. If the focus instead was on dramatically reducing the weight and size of cars, there would be far greater gains, whatever the power system. So far as I’m aware, BMW is the only major car company taking weight reduction seriously.

      2. Altandmain

        Steep grades is actually one area that hybrids can do benefit 9ver ICE cars.

        Regenerative braking works on downhill as well.

        1. PlutoniumKun

          In theory this is true, but (I’ve a comment on this above that is in moderation), but my personal experience driving them is that they are very inefficient in hills. I’ve driven hybrids and ICE cars in the mid range mountains here in Ireland quite frequently (I don’t own a car, but I rent quite frequently so I get to compare them), and while its not a scientific comparison, I’ve found that the fuel use of hybrids rise very significantly, especially when compared to diesel cars. I’ve assumed its due to the additional weight, but I could stand corrected on this.

    3. Solarjay

      Well said LF.
      Electric cars in the US are marketed with about everything other than efficiency.
      In another comment someone talked about a new electric pickup with 1000hp, to further your points.

      Smaller lighter hybrid ( such as the VW XL1) are probably the better environmental answer for the next 10-15 years. Until the electric grid is more robust snd has a much lower carbon footprint.
      And until we get a much more environmentally friendly energy storage medium, than lithium batteries.

    4. w d w

      do you know exactly how large and how efficient the Toyota battery is? and how heavy it is? and how heavy and efficient the gas engine is (which is also lugging that battery…and motor)? also need to look at current ICE vehicles that are specifically designed and built for high gas mileage, compare the MPG and price to the Toyota. while i suppose its great that hybrids have gotten to 300,000 miles, they arent the own vehicles to do that. and if you look at how new cars (any type) are brought up to market? its the most expensive models and trims that come first, companies have to pay back their r&d investments quick. and since hybrid have been on the road for 20+ years, they dont seem to in high demand, even today with high gas prices. course there are cheaper BEV than Teslas, some that are really close to the price for the Toyota.

  2. Fazal Majid

    Isn’t Big Oil’s share of US retail fuel sales dwindling, in any case (from 80% to 45% in the last 40 years)? Many stations are independent mom-and-pops operating under a franchise, they pay full price for their fuel and don’t have any economies of scale or negotiating power.

    1. Yves Smith Post author

      That’s a very good point. Here in Alabama, Exxon and Chevron are the most visible retailers. But in Maine, it’s Irving and Cumberland.

    2. scott s.

      You have to segregate upstream and downstream business. The trend is for majors to divest downstream assets (for example, Royal Dutch-Shell sold off the largest US refinery to Saudi Aramco). You have dedicated downstream companies like Marathon, Phillips 66, Valero, etc. Refining margins are an important indicator of how the downstream market is trending.

  3. The Rev Kev

    Biden may be trying to intimidate oil and gas companies into lowering prices at the pump but without much luck according to this article. So now he is trying to get countries like China, India, Japan and South Korea to dip into their strategic reserves to lower oil prices worldwide which would maybe, hopefully have an effect on US prices-

    South Korea is already indicating that they are going to give this idea a bit of a miss as old Joe’s gratitude and a dime won’t buy you a cup of coffee-

  4. Bob

    The retail motor fuel market is easily manipulated.

    News reports often mention “Supply and Demand” however actual numbers are rarely reported.

    Note that very recent legislation US oil companies were allowed to export oil and gas. This means that the supply is shifted from the domestic market to meet offshore demand. Is it any surprise that domestic motor fuel costs have risen?

    If Uncle Sam was serious he would support a wholesale shift to compressed natural gas for motor fuel.
    There is an excess of natural gas to the point that it is commonly cheaper to flare than collect. Note that Uncle Sam does support electrical vehicle charging stations.…/

    1. Anthony Stegman

      In California oil refineries often go offline for so-called maintenance and switching between winter and summer blends. This has the immediate desired effect (for refinery owners) – higher prices at the pump. Price swings for WTI and Brent crude play minor roles in price swings at the pump.

      1. w d w

        well there is a reason that refineries switch blends. its called chemistry. since one blend will work well in the summer, but not so well in the winter . and vice versa
        now they do have to do some maintenance, unless you want to see lots of explosions where they are

    2. w d w

      it is ,,,just not the way you think it is. you mentioned the switch from more expensive oil to the cheaper oil which could only be done because refineries could process that oil. which US refineries now use for US consumption (has is gas…there is a very specific formula for it….).
      there have been natural gas vehicles before, and there is a reason it never caught on. for one thing, just going to work (say 15 miles one way or 30 miles round trip….means that you have to fill the vehicle ate least once in that trip…and there is also a minor issue with availability…there are very few natural gas station for vehicles). and flaring is just a sign of how cheap it is,,,,the gas plants have to to that from time to time)
      course given time and incentive (more money) any vehicle fuel will be maniuplated

  5. Susan the other

    Just last week Nick told us about the spat between AMLO and Koch Industries (I assume it’s Koch – big US gasoline producer; refineries). The World Bank informed Mexico that if they cut their supply of crude from Pemex wells by 30% – oil going to US refineries – it would make Mexico’s imported gasoline more expensive. And now Biden has permitted more wells in the Gulf of Mexico. Sort of unexpectedly. Probably somewhere close to Guyana. So it looks like the higher price of gasoline is a necessity to keep the refineries in business. At least from one angle. I’m assuming gasoline is a major export for us by now. And about KSA – it makes more sense to think of their price war with Russia as actually our price war with Russia in our ongoing effort to keep the Russians out of the EU market. So using the toothless FTC as intimidation is pure theater, mostly because Biden is failing politically.

    1. Alex Cox

      Right now Mexico doesn’t have a functioning oil refinery. It exports its crude to Houston, and reimports it as diesel and gas. So AMLO has ordered the construction of a new refinery in his home state of Tabasco.

      Very bad for the planet! But what is Mexico to do? Trust the Americans to be agreement-capable? Or build that refinery?

  6. Frank Little

    If there’s anything to go after major oil firms over, it’s the fact that their own analysis predicted the greenhouse effects of burning fossil fuels as far back as the 1950s. Armed with an ever growing pile of evidence about the effects of their activity, they wasted valuable time funding a decades-long propaganda campaign to sow doubts about science that is so simple it’s taught in middle schools.

    Of course we are all implicated to the extent that we use energy to survive and even the combined revenue of these companies would not be nearly enough to finance a transition from fossil fuels. But as one of the billions of people planning to live through much of the next century I find this kind of systematic pursuit of up-is-down dishonesty enraging, if unsurprising. I don’t anticipate it happening, but going after them for this would be better than some kind of flimsy anti-trust action.

  7. Larry Y

    Oil production (outside of Russia and Saudi Arabia) is not going to increase unless oil prices continue to stay high. Fracking and oil sands bubble has gone and burst, and the survivors aren’t repeating that anytime soon.

    The only other way of decreasing oil prices is austerity and another depression. Does anyone who wants cheap gas really want austerity and recession?

    Getting through the cognitive dissonance is possible, even Florida isn’t willing to drill offshore.

  8. Elizabeth Burton

    Of course, the timing of this announcement the day before the Biden Administration sold off the last of the unexploited areas of the Gulf, accompanied by a press release from the American Petroleum Institute that said leases would be the answer to the “scarcity” causing the increasing fuel prices, was purely coincidental.

  9. w d w

    well, exactly how was the feds supposed to force companies to reduce their prices? you can talk them into it (jaw boning want work any more) and it looks bad that the CEOs wont show up. turning the DOJ on them…will take years to see any thing to fruition. so exactly what are the other options?

  10. Ben Dalton

    I saw some investment in Passenger and Freight rail in the Infrastructure bill. Is that big enough to take away transport from road to rail (Freight at least)?

    I see investing in passenger rail and reducing personal transport demand (and consequently reducing fuel demand) as the better way to insulate people from price shocks (partially at least). Is the Petroleum, Auto and Airline lobby obstructing this?

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