Biden tells oil companies in letter that ‘well above normal’ refinery profit margins are ‘not acceptable’

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CNBC


President Joe Biden on Wednesday called on U.S. oil refining companies to produce more, saying they must help ease the burden of high prices on consumers.

Source: CNBC

“In wartime – the historically high refinery profit margins passed directly to American families are not acceptable,” the president said in a letter to oil companies, including Exxon Mobil and Chevron.

″[C]Companies must take immediate action to increase the supply of gasoline, diesel and other refined products,” the letter adds.

Biden’s call comes as sky-high energy costs add to inflationary concerns across the economy. The national average for a gallon of gasoline crossed $5 over the weekend for the first time on record, according to AAA.

The national average now stands at $5.014, 54 cents higher than a month ago and $1.94 higher than a year ago.

Refiners cannot simply increase production, with utilization rates already above 90%. Additionally, some refiners are currently being reconfigured to produce alternative products such as biofuel.

Refining capacities have fallen since the pandemic took hold, contributing to the rapid rise in fuel prices. Demand has returned as economies restart and people travel again, but supply remains limited.

“Global Challenge”

The loss of Russian refined products has exacerbated the imbalance, with Europe now looking elsewhere for fuel.

Biden said his administration is prepared to use “all reasonable and appropriate tools of the federal government and emergency authorities to increase refinery capacity and production 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 pandemic began.

Yet he pointed to the “unprecedented disconnect between the price of oil and the price of gas”.

“Year-to-date, refining margins for gasoline and diesel refining have tripled and are currently at their highest levels on record,” he said.

Biden noted that the last time oil traded at $120 a barrel, the average gas price at the pump was around $4.25 a gallon.

Oil prices fell after the release of Biden’s letter, West Texas Intermediate, the US benchmark, recently trading 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 refiners all fell slightly in premarket trading.

“The crisis facing families deserves immediate action. Your companies must work with my administration to come up with concrete, short-term solutions that respond to the crisis,” Biden said.

“There’s nothing left to climb”

Yet there is no easy solution. John Kilduff, partner at Again Capital, said refiners are working at a historically high level.

“There is nothing more to speed up,” he said.

Kilduff noted that no new refineries have been built for decades, but existing units have been expanded. Before the pandemic, there was excess refining capacity, which put pressure on profits.

“Years of sanctions against Venezuela and Iran, and now Russia, have more than contributed to the current situation,” he said.

The industry says the administration’s policies are responsible for the price spike.

“While we welcome the opportunity to engage in increased dialogue with the White House, the administration’s misguided policy agenda away from domestic oil and natural gas has aggravated inflationary pressures and added headwinds. 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 address the energy crisis, including lifting development restrictions on federal lands and waters and accelerating exports of LNG.

Biden’s action on Wednesday is the latest move by the administration to show it is taking action against runaway inflation. Rising prices have become a headache for the White House ahead of November’s midterm elections.

Biden has repeatedly called for higher prices at the pump as a Putin tax, while also calling on U.S. producers to increase production. The message is at odds with the White House’s emphasis on reducing fossil fuel production in the United States.

The administration said companies were prioritizing financial returns over Americans.

“Exxon has made more money than God this year,” Biden said Friday.

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