Congress Picks Populism Over Increased Supply With Price Gouging Legislation

Democrats continue to decry high gasoline prices and accuse oil companies of price gouging, but lawmakers should consider whether their policies restricting domestic energy production are to blame for soaring consumer prices.

Democrats may want to look in the mirror before pointing the finger at the people who create jobs and produce the energy this country runs on. The Democrats’ own policies are causing the energy scarcity that’s driving up prices.

Oil and gas prices have risen because of falling supply. Less than a decade ago, there were 1,600 active drilling rigs in the country producing or searching for oil; now, there’s a quarter of that number.

There were twice as many drilling rigs operating in the Gulf of Mexico before the pandemic hit in spring 2020. That was also the last time oil was at or above $100 a barrel.

Why? Because the energy sector faces severe supply chain shortages, including skilled workers who left the industry during the pandemic, and shortages of critical materials such as frac sand and wellbores that have become scarce and expensive.

Those factors have combined to restrain American oil production, which now sits around 11.6 million barrels per day compared to a peak in 2019 of 13 million per day.

Democrats know high energy costs and inflation are a problem in the midterm elections and are desperate to show that they are addressing the issue.

They are sticking to their populist playbook of blaming corporate America for profiteering. They have bashed oil companies – incorrectly – for price gouging since consumer prices at the pump started rising after President Joe Biden took office over a year ago.

Congressional Democrats are proposing numerous bills against Big Oil for the crime of profiteering. Now, they plan to introduce legislation next week that would expand the Federal Trade Commission’s authority to investigate price gouging and give the President the power to declare an energy emergency and limit price increases.

This is how things are done in Venezuela and other socialist countries, not America. Thankfully, none of these measures are likely to become law because Democrats lack the 60 votes required to avoid a filibuster in the Senate.

The FTC already has all the authority necessary to act against manipulation in wholesale and retail oil markets. Dozens of federal investigations into price gouging – the most recent was done in November at Biden’s request – have failed to turn up evidence that producers are keeping prices artificially high. Repeated FTC investigations have found that changes in gasoline prices are based on market factors – rising demand meeting limited supply – not illegal behavior.

Price gouging legislation is a blatant attempt by Democrats to shift blame for an issue they know consumers are rightfully worried about. And the situation won’t get any better as the summer driving season begins in a couple of weeks, adding to the demand pressure. Americans are looking for solutions, not posturing by frightened politicians.

False accusations of price gouging are not only wrong, but they are also dangerous. Attacking the very industry while we need it to increase investment in exploration – even the Biden administration has called on the oil industry to increase supply – only makes sense to the far-left progressive wing of the Democratic Party.

The price of crude and refined products – like gasoline and diesel – is set in a global commodity marketplace. Prices are soaring because of a global supply crunch, workforce constraints, the war in Ukraine, and an economic rebound as the United States and much of the world emerge from the effects of the coronavirus pandemic, driving up demand.

Prices at the pump are at or near record highs in many parts of the country due to the growing imbalance between supply and demand.

The EU’s moves to ban imports of Russian petroleum have added to the upward pressure on prices. Russia is a major supplier of crude and refined products – particularly diesel – to Europe. By cutting off Russian supplies, Europe must find replacements elsewhere in the market, which has knock-on effects across global fuel markets. American consumers will feel the pain, too.

Global oil markets are suffering from insufficient investment in new supplies. That is the case in the “upstream” – the exploration and development of crude oil supplies – and in the “downstream” among refiners that process crude oil into products like gasoline, diesel, and jet fuel that consumers use every day.

Today’s supply crunch is as much about a lack of refining capacity as low crude supplies. The world lost roughly 4 million barrels a day of refining capacity during the pandemic’s demand collapse, including about 1.4 million barrels a day in the United States. In a global oil market of 100 million barrels a day, that is a considerable figure.

With global climate policies and related ESG investor pressures, there’s concern that worldwide oil demand will peak in the next decade. Refiners shut excess capacity during the pandemic and, in most cases, don’t plan to bring it back now due to political pressures related to the low-carbon energy transition. Refiners are asking themselves why they should invest limited resources in a venture that politicians and markets are betting against?

The Ukraine war makes matters worse because Russia is a major exporter of refined products, and sanctions are taking a significant toll on these sales. Russian refiners can’t find buyers for their diesel, so they are reducing production and taking supply off the global markets. Covid-19 lockdowns in China, another major exporter of refined products, have a similar effect.

So, domestic high energy prices are part of a global trend, not a conspiracy by retail gasoline station owners – most of which are not owned by major oil companies but by smaller, independent players.

The market fundamentals aren’t going to be changed by price-gouging legislation. The Organization of Petroleum Exporting Countries (OPEC) is also not going to ride in and save the day. The Saudi-led cartel has made that clear by consistently resisting President Biden’s pleas to add more supply to the market.

The only thing that will alleviate the situation is higher investment in global crude and fuel supplies. Biden knows this, which is why he recently did an about-face on the issue and called for more domestic drilling. But the President and his party’s energy and climate policies are still working against the development of new fossil fuel supplies, and they’ve done nothing to resolve the lack of refining capacity.

The White House is sending a mixed message on energy, blaming Big Oil for a problem it helped create. Consumers may be footing the bill for Biden’s policies now, but Democrats will pay at the polls in November.