Don’t blame big oil for high gasoline prices

The Biden administration’s insistence that oil companies are ripping off Americans by stuffing their own pockets culminated in a hearing this week in the House Energy and Commerce Committee, at which CEOs of America’s largest oil corporations were excited about their role in the setup. gasoline prices. While Democrats continued to accuse oil companies of raising prices, executives from Exxon, Chevron, BP America, Shell USA, Devon Energy and Pioneer Natural Resources explained the fundamentals of the economy and how crude oil production and fuel distribution work in the free market.

The price of crude oil The single most important factor in the price of gasoline

The largest component – out of four – in determining the price of gasoline in America is the price of crude oil in international markets. In February 2022, the price of oil was up to 61 percent of the price American drivers paid per gallon of regular gasoline. EIA data. For the decade from 2012 to 2021, oil prices were 54.8 percent of the price of a gallon of gasoline, according to EIA showed.

The other three components that affect the price of gasoline are taxes, costs and profits on refining, as well as costs and profits on distribution and marketing.

As of January 1, 2022, total government taxes and levies on gasoline averaged 31.02 cents per gallon. Sales taxes, as well as taxes applied by local and municipal governments, can have a significant impact on the price of gasoline in some places, the EIA said. State taxes also affect gasoline prices, and as the national average price has risen above $ 4 a gallon, some states have switched to temporarily suspend taxes, while others believe it makes it easier for American customers who are very sensitive to gasoline prices and often associate their approval of the presidency with the price of gasoline they pay.

Refining and profit costs, as well as distribution and marketing costs, reflect seasonal and local factors, including peak / off-peak gasoline demand, ethanol cost, location of a separate gas station, state and local fees, or state regulations on gasoline depots for reducing air pollution.

Moreover, the largest oil companies own several retail gas stations in the United States, and less than 40 percent of the country’s 145,000 gas stations supply branded fuel to one of the five major oil companies – Exxon, Chevron, Shell, BP and ConocoPhillips / Phillips 66 .

The price of gasoline paid by Americans depends on several factors, the biggest of which is the price of oil. Big Oil, or any other oil company operating in the free market, such as the United States, has very little or nothing to do with how much a gallon of gasoline costs.

“We do not control the market price”

“I have seen statements in the press that Chevron and other oil and gas companies are responsible for raising fuel prices. I want to be absolutely clear: we do not control the market price of crude oil or natural gas, as well as petroleum products such as gasoline and diesel, and we have no tolerance for overpricing, ”said Chevron CEO Michael Wirth. said the listeners on Wednesday.

Chairman of the House of Representatives Committee on Energy and Trade Frank Polon Jr. opened the hearing from: “Today we are here to get answers from the big oil companies about why they are tearing up the American people.”

Although about 8,000 gas stations across the country have Chevron brands, the vast majority of them are privately owned and run and set their own prices for the fuel they sell to consumers. Chevron owns and operates only about 300 gas stations in the three states, Wirth of Chevron said.

“And while oil prices may fall faster, competition between trading stations often takes longer to lower pump prices,” he said.

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Leaders of other companies present at the hearing shared similar views.

Darren Woods, CEO of Exxon, said:

“No company sets the price of oil or gasoline. The market sets the price based on the available supply and demand for that supply. Constant investment in new production to compensate for depletion and meet growing demand is the only way to achieve balanced markets and more affordable prices, bringing real relief to the pump. ”

Woods also recalled that government policies that create investment confidence are important to secure more supplies and lower gasoline prices in the medium term, which is a call to the administration to adopt a policy that encourages US oil and gas supplies. .

“Consistent, efficient, and effective licensing processes for leasing, drilling, or infrastructure, such as pipelines, or export applications, will help stimulate further investment in U.S. oil and gas production,” the CEO of Exxon added.

“Pioneer” is a “price tag”. We do not set selling prices for our products. Most likely, our oil and other commodities are sold on the basis of index prices determined by the bases of international supply and demand and world markets, ”said Pioneer Natural Resources CEO Scott Sheffield. said.

Gretchen Watkins, President of Shell USA, noted that “Because oil is a global commodity, Shell does not set or control the price of crude oil. Similarly, Shell does not set or control the price consumers pay. Indeed, it would be illegal for Shell because almost all Shell-branded outlets in the United States are owned by independent operators who set their own prices in the market. ”

According to NACS, the Association of Convenience and Fuel Retailers, just about 0.1 percent refueling points the country is owned by a major oil company.

“So when you see ads about the profits or revenues of oil companies, don’t confuse them with your local / neighborhood store, which fights every day for your business to power your car,” – Jeff Lennard, NACS Vice President of Strategic industry initiatives, wrote earlier this month.

Tsvetana Paraskova for Oilprice.com

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