Gasoline prices in the United States continue to rise and the Washington Democrats have found a convenient scapegoat for the pain inflicted on American drivers: Big Oil.
President Joe Biden says the oil companies “They shouldn’t increase their profits” as crude oil prices fall. Meanwhile, Democrats are pushing for an unexpected tax on oil profits, and industry CEOs may face a congressional barbecue next month.
But halfway to 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 increasing production.
“I have had several informal discussions and many of them have told me that they have no intention of changing their plans. What they need are a couple of things, ”Colorado Governor Jared Polis said in a new interview with Yahoo Finance Presents.
First, oil companies need long-term price stability. If a company moves now, it could lose if prices drop before new oil actually starts flowing. “It could be in six months, it could be in a year,” Polis says of the delay that every company must take into account.
Indeed, the price of oil has been very volatile in recent years. When many Americans drove briefly less at the start of the pandemic in 2020, the oversupply briefly turned oil prices negative. This shook the industry and led to production withdrawals that we still hear today.
Again this week, the price of crude oil tumbled and entered bear market territory days after the all-time highs.
Aside from price volatility, capital markets could prevent oil companies from changing course.
“There was a debt bubble that pushed oil and gas production a couple of years ago and I’m still on the other side of the pendulum,” Polis says. At this time, he added: “They are not interested in debt financing and expansion.”
A company like Exxon (XOM) surely remembers investing in the past decade and posting a net annual loss of $ 22.4 billion for 2020, the largest in its history.
The oil giant survived, but many smaller companies have gone bankrupt. In a recent oil bankruptcy report, Texas law firm Haynes and Boone documented more than 600 industry bankruptcies from 2015 to 2021.
Oil companies have plenty of opportunities to drill, including in Colorado, Polis says. “It’s not about allowing; it’s about the deployment of capital, ”he says.
Some Republican lawmakers, he warned, are “almost echoing the lines of the Socialist Party by saying we should order them to do it or make them do it, a kind of centralized economy of command.”
“Is that something we can count on?”
As of Friday, Americans are paying $ 4.27 for a gallon of gas, close to recent highs even as the price of crude oil has dropped. Colorado, the fifth largest crude oil producer in the United States last November, is slightly below average with prices of $ 3.96 a gallon.
Washington politicians are focusing on high prices, blaming both “Putin’s price hike” and the alleged profit of oil companies. A liberal group proclaimed the companies “Price Gouge Consumers After Record-Smashing Year” in a statement on Friday.
For its part, instead of trying to put pressure on oil companies, Polis has handled inflation differently and focused on measures to ease prices for its constituents, such as cutting taxes and government taxes. He favors the suspension of the federal gas tax, which would reduce gas prices by 18.4 cents per gallon; it aims to provide its constituents with additional relief by cutting state gas taxes.
Other than that, it could be a waiting game.
“Look, if prices stay where they are now, there is no doubt that domestic production will increase. But I think what a lot of manufacturers want to see is, ‘Is this just a spike in the market?’ or ‘Is that something we can count on when we put the platforms into the ground?’ ”says Polis.
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC. Rick Newman contributed to the report.
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