Why Big Oil Isn't To Blame For Rising Gas Prices

These politicians do not seem to understand that oil companies don't control prices...

Both Republicans and Democrats have misconceptions regarding the energy sector. The former tend to downplay climate change, while the latter misunderstand oil industry operations.

The global oil market is determined by supply and demand. Individual oil companies are not responsible for the rise in oil prices.

It is important for policymakers to understand the energy sector in order to provide effective governance.

A good energy policy begins with a thorough understanding of the energy issues. Both major political parties are blind to the energy sector.

Before I begin, let me state that I am an Independent. I am a registered Independent and have strong disagreements with the two major political parties. I try to look at issues objectively.

When it comes to climate changes and the importance to transition to alternative energy, I believe Republicans are mostly wrong. They seem to recognize the importance of fossil fuels to the economy and are generally right in their support for nuclear power.

The oil industry is a mystery to Democrats.

Take a look at the Democrats who have signed the 'Big Oil Windfall Profits Tax.

Introduced last year

Senator Sheldon Whitehouse, D-RI. Senator Whitehouse announced the bill and said that it would "curb the profiteering of oil companies" and give Americans relief at gas pumps.

Senators Jeff Merkley, Elizabeth Warren, Bernie Sanders, Richard Blumenthal, Tammy Baldwin and Bob Casey cosponsored the bill. The legislation was introduced by Congressman Ro Khanna, D-CA-17 in the U.S. House of Representatives.

This same group of people has also blamed inflation on oil company profits, in addition to blaming price gouging.


Senator Bernie Sanders

Doing that

They don't seem to realize that oil companies do not control the price.

Oil is the most valuable commodity in the world. Buyers and sellers on global markets set oil prices based upon supply and demand expectations.

ExxonMobil produces such a small percentage of world oil that they could not move the prices much even if they tried. The companies benefit from high oil prices but do not set them. Prices would never drop if they set them.

When you say that profits cause inflation, it is confusing to confuse cause and effect.

This is like saying that hospitalizations are the cause of car accidents. Hospitalizations are not the cause of car crashes. It's true that car accidents can lead to hospitalizations, but they do not. If you think the latter, and try to solve the problem by focusing your attention on the hospital, you're working on the wrong issue.

High oil prices are also responsible for high profits in oil industries and high inflation. High oil prices are a result of supply and demand.

Oil companies cannot gouge you unless there are rare circumstances. They don't determine the price. A local gas station, which sets its own price, would be guilty of true price gouging if it doubled their prices when the supply was plentiful. Chevron's ability to earn more by taking advantage of high global prices, set by the markets, is normal capitalism. This is how global commodities markets operate.

In the minds of politicians, I can imagine executives from Big Oil meeting in smoke-filled conference rooms, rubbing greedy hands, and deciding that prices will be raised because Russia invaded Ukraine. This is not the way it works.

Politicians who want to reduce oil prices must address both the supply and demand sides. It may sound good for politicians to propose windfall profit taxes on oil companies with the intention of giving rebates to consumers. But this doesn't solve the problem.

Rebates would reduce the price signal, which would not alleviate demand pressure. Punitive taxes for oil companies may sound attractive, but they will reduce the amount of money available to fund projects and affect future supply. Hugo Chavez, the former Venezuelan president, learned the lesson the hard way. Venezuela still pays the price.

Many people are outraged that oil companies use record profits to pay back shares to shareholders or to give special dividends.

It's not uncommon for companies to pay dividends or buy back shares when profits are high. This is how capitalism works. Companies should be allowed to buy back shares if they can issue them.

There are several options for consumers who are concerned about the high price of oil. Invest in an oil company. When oil prices increase, your shares will rise as well. Consider switching to electric vehicles to reduce your dependence on fossil fuels.

Understanding energy issues is essential for effective policymaking. However, both major political parties frequently display significant misunderstandings about the energy sector.

Understanding the complexity of the energy industry will help policymakers, consumers and other stakeholders make better decisions and contribute to a sustainable and economic future.