Big Oil Is Not Dancing To Government Tunes. Period.

quote:

---

Several days ago, President Biden made a media splash when he threatened oil companies with windfall taxes and “other restrictions” if they don’t stop returning cash to shareholders and start investing this cash in more oil production.

The industry, via the American Petroleum Institute, responded with yet another reiteration of the fact that the oil market is a global one, and producers don’t have complete control over prices because it is also a free market.

Oil producers, big and small, did not react to the U.S. President’s latest attack on it. The industry simply continued what it has been doing since oil prices rebounded: returning cash to shareholders and planning its spending carefully.

Bloomberg’s Javier Blas summed the situation up in a pithy commentary that basically reminded everyone that this same administration that is now calling for more oil, just two years ago pledged to reduce oil drilling in the U.S. as much as possible.

---

quote:

---

None other than the International Energy Agency has just warned that oil demand growth will peak by the mid-2030s, the FT noted, and the U.S. president wants oil companies to spend billions on what will effectively become stranded assets in a few short years.

---

quote:

---

The IEA may be wrong, as it often is, but Wall Street is a whole other story. Per the FT, it is banks that want oil companies to keep returning cash to shareholders instead of investing it in new production.

Shareholders themselves would certainly agree: they spent years watching how much cash was poured into relentless production growth and then they saw prices go negative, even though it was only for a little while. The price crash of 2020 was very real and very painful.

Besides, shareholders, especially in Big Oil majors, are applying another sort of pressure on the companies: ESG pressure. It was not a whim that all Big Oil majors had to come up with net-zero plans, targets, and strategies how to get there.

---

quote:

---

“I think they have a responsibility to act in the interest of their consumers, their community and their country to invest in America by increasing production and refining capacity,” President Biden said of oil companies in his Monday speech.

In fact, the plain truth is that they do not have any of these responsibilities. Oil companies have responsibilities to their shareholders, creditors, and employees. It’s the government that has a responsibility to act in the interest of consumers, communities, and the country.

The Biden administration has not been doing a very good job of it. And it has been quite slow in realizing its stated plans to decimate the oil industry might backfire before too long. Now, everyone is paying the price for this slow realization. Everyone but oil companies, which are buying back shares, increasing dividends, paying off debt, and going easy on the production growth front.

---