Democratic governor warns against ‘echoing Socialist Party lines’ and forcing Big Oil to drill
Gas prices in the United States keep rising and Democrats in Washington have found a convenient scapegoat for the pain inflicted on American drivers – Big Oil.
President Joe Biden oil companies say “should not inflate their profits” as crude oil prices fall. Meanwhile, Democrats are pushing for a windfall tax on oil profits, and industry CEOs could face grilling in Congress next month.
But halfway across the United States, the Democratic governor of a major oil-producing state has a different message: Oil companies may have good reason to be wary of increased production.
“I have had several informal discussions and many of them tell me that they do not plan to change their plans. What they need for that is a couple of things,” Colorado Governor Jared Polis said in a new Yahoo Finance Presents interview.
First, oil companies need long-term price stability. If a company moves now, it could be a loser if prices drop before new oil starts flowing. It “could be six months from now, it could be a year from now,” Polis says of the lag every business has to consider.
The price of oil has indeed been very volatile in recent years. When many Americans briefly drove less at the start of the pandemic in 2020, excess supply briefly drove oil prices negative. This shook the industry and led to production setbacks that we still feel today.
Even this week, the price of crude oil crashed and entered bearish territory days after hitting record highs.
In addition to price volatility, capital markets could prevent oil companies from changing course.
“A few years ago there was a debt bubble that boosted oil and gas production and they’re still on the other side of the pendulum,” Polis says. At the moment, he added, “they are not interested in debt financing and expansion.”
A company like Exxon (XOM) surely remembers investing for the past decade and then posting an annual net loss of $22.4 billion for 2020, the largest in its history.
The oil giant survived but many small companies went bankrupt. In a recent report on oil bankruptcies, the Texas law firm Haynes and Boone documented more than 600 industrial bankruptcies from 2015 to 2021.
Oil companies have plenty of drilling opportunities, including in Colorado, Polis says. “It’s not about allowing; it’s a matter of capital deployment,” he says.
Some Republican lawmakers, he warned, “almost echo the lines of the Socialist Party in saying we should order them to do it or have them do it, some sort of centrally directed economy.”
“Is this something we can count on?
Since Friday, Americans have been paying $4.27 for a gallon of gasoline, near recent highs even as the price of crude oil has fallen. Colorado – the fifth-largest crude oil producer in the United States last November – is a little below average with prices at $3.96 a gallon.
Washington politicians focus on high prices, blaming both “Putin’s price hike” and supposed oil company profits. A liberal group proclaimed the companies “Price Gouge Consumers After Record-Smashing Year” in a statement Friday.
For his part, instead of trying to pressure oil companies, Polis has handled inflation differently and focused on measures to ease prices for his constituents, such as cutting taxes and fees. governmental. He favors the suspension of the federal gasoline tax, which would drop 18.4 cents per gallon on gasoline prices; he aims to provide his constituents with additional relief by reducing state gasoline taxes.
Beyond that, it could be a waiting game.
“Listen, if prices stay where they are now, there is no doubt that domestic production will increase. But I think what a lot of growers want to see is, ‘Is this just a market tip?’ or ‘Is this something we can rely on while we get the rigs in the ground?’ Says Polis.
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC. Rick Newman contributed reporting.
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