With mid-term elections just months away and gasoline prices still near record highs, Republicans and Democrats are blaming one another for consumers’ pain at the pump.
The conflict was on full display at Wednesday’s House hearing on gas prices, where top U.S. oil company executives were called to testify.
Democrats accused the oil companies of ripping off consumers by raising the price of oil. Democrats on the Energy and Commerce Subcommittee on Oversight and Investigations posed pointed questions to the CEOs of Exxon Mobil, Chevron, Pioneer, and Shell
“It’s often stated that oil is a global commodity and its price is determined by the global marketplace. We don’t dispute that,” said subcommittee Chair Diana DeGette (D-Colo.). “But the price of oil, alone, is not what’s alarming most of us on this panel. It’s the price at the pump.”
No control over the market price
The chief executives immediately defended their pricing practices by pointing out that current market conditions are leading to higher costs.
“We do not control the market price of crude oil or natural gas, nor of refined products like gasoline and diesel fuel, and we have no tolerance for price gouging,” Chevron CEO Michael Wirth told the lawmakers.
In fact, oil prices are mostly set by the oil futures market. And while other factors go into the price of gasoline, the price of oil does in fact make up a significant part of it.
Republicans on the committee pointed fingers at Democrats, accusing them of discouraging exploration and production of oil in favor of renewable forms of energy. In particular, Rep. Morgan Griffith (R-Va.) blamed President Biden directly.
“Rather than deflect blame, President Biden should consider his own culpability for higher energy prices,” Griffith said.
Oil expert weighs in
Patrick DeHaan, head of petroleum analysis at GasBuddy, says he found the hearing hard to watch.
“They [the lawmakers] may have a political science degree, but many seem to lack any substantive understanding of economics,” DeHaan posted on Twitter.
So what’s the real reason for the spike in oil prices? DeHaan says a lot of it is simply due to the economic dislocation caused by the COVID-19 pandemic.
“The primary reason prices remain elevated are the effects of COVID shutting down the economy for 2020 and stifling oil demand, leading oil companies to make long term cuts,” DeHaan told ConsumerAffairs.
At one point early in the pandemic, when people were no longer commuting to work, there was so much excess oil that oil companies ran out of storage room and paid their customers to take it off their hands.
“But demand came roaring back in 2021, quickly absorbing the excess and then leading to a worsening imbalance between supply and demand since then,” DeHaan said. “This year, the imbalance has been made worse by Russia's war on Ukraine amidst a new urgency to cut Russia's oil supply off, leading to even less oil supply as the global economy continues to recover.”
Oil prices have also been volatile because of international tension and uncertainty, causing markets that set the price of refined products to shy away from lowering prices too quickly. Even so, prices at the pump are beginning to fall.
AAA reports that the national average price of regular gas is $4.15 a gallon, down seven cents a gallon in the last seven days. However, it’s only 16 cents a gallon lower than its record high of $4.33 a gallon.