Big Oil to Face Grilling Over High Prices

Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--A U.S. congressional panel said it would hear next month from six oil company executives who are expected to vet questions on whether corporate greed was behind the steady increase in commodity prices.

U.S. Rep. Frank Pallone, Jr., (D-N.J.), the chairman of the House Energy and Commerce Committee, scheduled an April 6 hearing entitled, "Gouged at the Gas Station: Big Oil and America's Pain at the Pump."

Pallone and Diana DeGette (D-CO), the chair of the House Oversight and Investigations Subcommittee, expressed joint concern about the burden imposed on household incomes from the spike in commodity prices. Expected to testify are the top brass at?BP?(NYSE:BP) (London England),?Chevron?(NYSE:CVX) (San Ramon, California),?Devon Energy?(NYSE:DVN) (Oklahoma City, Oklahoma),?Exxon Mobil Corporation?(NYSE:XOM) (Irving, Texas),?Pioneer Natural Resources Company?(NYSE:PXD) (Irving) and?Shell plc?(NYSE:SHEL) (London, England).

"It's time we get to the bottom of why oil companies are content to watch Americans suffer so that their shareholders and executives can reap enormous profits," they said. "Our committee looks forward to getting answers from these companies next week."

West Texas Intermediate (WTI), the U.S. benchmark for the price of oil, averaged $77.11 per barrel during fourth-quarter 2021, a price that had raised concerns about inflationary strains. The Russian military invasion of Ukraine in late February only amplified the bull run for commodities. Russia is a major crude oil and natural gas producer and any limitations on its output has a ripple effect on the global economy.

WTI has averaged $94.29 per barrel so far during the first quarter. Since January 1, the U.S. benchmark is up 38.6%, compared with a gain of just 0.24% during the previous quarter.

On March 11, meanwhile, the average national retail price for a gallon of regular unleaded gasoline hit $4.33, the highest national average ever. Energy prices, meanwhile, account for the bulk of consumer inflation and that metric is at a 40-year high. Some economic indicators, such as the U.S. Treasury yield curve, are pointing to an imminent recession.

That does not bode well for everyday consumers, whose spending is the main factor for economic growth in a free market. The more consumers have to pay at the pump, the less they have to spend on things like groceries. That makes energy companies low-hanging fruit for congressional leaders worried about economic momentum in an election year.

Shareholder pressure before the outbreak of war in Ukraine, meanwhile, had forced big energy companies to look for cleaner fuels to accelerate the energy transition. That left investments for new exploration at a premium, though federal forecasters still expect total U.S. crude oil production to set a record by next year.

Companies are indeed returning capital to shareholders. Pioneer Natural Resources, the largest U.S. shale oil driller, reported free cash flow of $3.2 billion last year, and much of that went back to shareholders.

But much of the concern from the House leaders is emblematic of partisanship as much as it is a reflection of current trends in the energy sector. Republicans are just as likely to blame federal energy policies for the lack of shale momentum as Democrats are to blame corporate greed.

Neither side is spot on, however. Private companies are indeed beholden to their shareholders, though those shareholders have recently asked for more renewable forms of energy, not more oil. To the other side of the debate, U.S. Energy Secretary Jennifer Granholm said at a recent energy conference in Texas that it was incumbent upon U.S. oil producers to pump more to address the energy security concerns stemming from the war in Ukraine.

Nevertheless, few things in the energy sector happen quickly. And recent commentary from analyst Stephen Brennock suggests few things in the energy sector are easy. The cost for frac sand, for example, is up 185% from last year.

"Another big reason why companies are restraining growth is inflation and the resultant rising input costs," he said.

That suggests that inflationary pressures are near-universal and not the zero-sum game that some policymakers profess.

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