President Joe Biden on Wednesday blamed collusion between oil and gas companies for rising prices at the pump and is asking the Federal Trade Commission to investigate "anti-consumer behavior."
In a letter to FTC Chairwoman Lina Khan, Biden claimed there is "mounting evidence of anti-consumer behavior by oil and gas companies." His letter comes as gas prices are at a seven-year high, on average more than a dollar more expensive than they were last year.
"The bottom line is this: gasoline prices at the pump remain high, even though oil and gas companies' costs are declining," Biden wrote. "The Federal Trade Commission has authority to consider whether illegal conduct is costing families at the pump. I believe you should do so."
The president observed that gasoline prices rose by 3% last month while the price of unfinished gasoline declined by 5% in the same period.
"This unexplained large gap between the price of unfinished gasoline and the average price at the pump is well above the pre-pandemic average," Biden wrote.
He added that the "two largest oil and gas companies in the United States" — Exxon and Chevron, according to CNBC — are projected to nearly double their net income compared to 2019, before the pandemic. "They have announced plans to engage in billions of dollars of stock buybacks and dividends this year or next," Biden wrote.
Pres. Biden, saying there is \u201cmounting evidence of anti-consumer behavior by oil and gas companies,\u201d in letter to the FTC: \u201cThe Federal Trade Commission has authority to consider whether illegal conduct is costing families at the pump. I believe you should do so immediately.\u201dpic.twitter.com/0SCa26hiqG— Phil Mattingly (@Phil Mattingly) 1637162752
"I do not accept hard-working Americans paying more for gas because of anti-competitive or otherwise potentially illegal conduct," Biden declared.
"I therefore ask that the Commission further examine what is happening with oil and gas markets, and that you bring all of the Commission's tools to bear if you uncover any wrongdoing."
According to an October report from the American Automobile Association, the national average price for a gallon of regular gas stood at $3.22, the most expensive it has been since 2014. Prices have continued to rise, reaching an average of $3.41 per gallon on Nov. 8, according to data from the U.S. Energy Information Administration. The agency reported that fuel taxes account for about 15% of the price average consumers nationwide pay per gallon.
The president's letter did not provide evidence of illegal activity by oil and gas companies.
Economists say the real cause of rising gas prices is factors entirely outside of any president's control — market supply and demand.
As coronavirus lockdowns were lifted and Americans have begun traveling more frequently, demand for gas went up. In the spring of 2020, after "15 days to slow the spread," the number of vehicle miles measured by the Federal Highway Administration plunged from 272 billion miles traveled in December 2019 to 166 billion miles in April. By summer 2021, highway traffic returned to its pre-pandemic normal.
At the same time, supply chain disruptions and energy market disruptions overseas have constrained the supply of gas, Business Insider reported.
The U.S. Energy Information Administration said in September that Hurricane Ida disrupted oil drilling and refining in the Gulf of Mexico in late August. Though oil rigs and refineries have since come back online, the EIA said that crude oil stored at Cushing, Oklahoma, one of the main crude depots in the U.S., was down 40% since the beginning of this year. The latest report from EIA states that U.S. crude oil inventories are about 7% below the five-year average for this time of year.
Higher demand and restricted supply result in higher prices.
Trouble in international markets is also impacting gas prices. OPEC and other major oil-exporting countries have resisted calls from the U.S. and other counties to boost the supply of oil. In August, Biden followed former President Donald Trump's example and called on OPEC to increase oil production, but the cartel only agreed to increase production by 400,000 barrels per day in December, telling Biden that if he wants more oil produced, the U.S. should increase its own oil production.
Oil producers in the United States are saying the same thing. Occidental Petroleum CEO Vicki Hollub said Tuesday the Biden administration should ask domestic shale producers to increase production and crude supplies, rather than rely on Saudi Arabia and OPEC.
"If I were gonna make a call, it wouldn't be long distance, it would be a local call," Hollub told CNBC.
"And I think that we could do it cheaply in the United States, as other countries can do," she added.
"I think first you, you stay home, you ask your friends, and you ask your neighbors to do it. And then if we can't do it, you call some other countries."
After Biden accused oil and gas companies of illegally colluding to drive gas prices up, the American Petroleum Institute said his letter to the FTC is a "distraction from the fundamental market shift" in the energy market because of the pandemic. The API added that "ill-advised government decisions" are "exacerbating this challenging situation."
"Rather than launching investigations on markets that are regulated and closely monitored on a daily basis or pleading with OPEC to increase supply, we should be encouraging the safe and responsible development of American-made oil and natural gas," Frank Macchiarola, API's senior vice president of policy, economics, and regulatory affairs, said in a statement.