As a native Texan, you might figure I know about oil. (Actually, I was an Air Force brat, and my Dad got transferred to a base on Cape Cod when I was 3 months old. We would return to Texas for my high school and college years.) After a first computer programming job in San Antonio, for professional reasons, I moved to Houston for a job in the now defunct APL mainframe computer timesharing industry. (Today's cloud computing market is analogous in concept.)
Houston was a national center of sorts for the oil industry. I particularly remember working on applications for Exxon in particular and Shell. The emerging PC revolution affected the timesharing business and I had started part-time in the UH MBA program. I also found myself out of work during oil recessions.
I eventually got accepted into the MIS PhD program and chose accounting as my minor. That meant I had to pass a minor written comprehensive exam, and to this day I remember one of the questions dealt with the accounting treatment for dry holes.
I haven't had as much exposure to the industry as some relatives. My middle brother, a chemical engineer who picked up his own MBA, worked for 2 major oil companies (one of them privately-held); I think he's had some exposure to environmental engineering and regulatory compliance. I also have a nephew engineer who has exposure to oil drilling equipment; unfortunately, he lost his job in the pandemic and recently made an engineering career change.
I've had my fill of conspiracy theories about the oil industry, not only from the left but the populist right as well (I published related rants from when the economically illiterate Bill O'Reilly opined, e.g., wanting to ban exports from US refineries to flood domestic markets and drive down prices. Refineries, of course, respond to declining margins and are not in the business to lose money.) Most people/leftists don't understand, for instance, the facts behind the infamous Keystone pipeline. I'm not referring to dubious environmentalist fearmongering or eminent domain issues, but "big picture" points, like why we might transport Canadian oil to Gulf refineries or even American crude to Canada? (And note there are multiple ways of transporting crude.) Doesn't Canada have its own refineries? Yup. What's the issue then? For example, not all oil is the same, like sweet vs. sour oil, and not all refineries have the technology to process sour oil, like Venezuela exports. Canada has limited capacity to handle bitumen while the US has the most capacity. (Obviously in the long term that could change, e.g., sustainability of bitumen production and new or upgraded refineries.) On the other hand, most Canadian refineries could easily handle west Texas sweet crude.
But most people don't understand a basic point drilled home by my first graduate accounting professor on past costs: you have to respond to current costs. When Biden was elected, oil sold for under $40 barrel to roughly $130/barrel in today's market. So, your typical leftist might argue some of the oil in your inventory only cost a third of the current cost. You should only be able to charge a markup on $40/crude. But that's irrelevant: I could sell that oil at a market price to another refiner. I can't replace that $40/crude in the market for ongoing operations. (I'm not going to go into the subtleties of LIFO, FIFO and average cost inventory in cost of goods sold here.)
Gasoline prices have climbed since I last filled up. I'm lucky in the sense I own a hybrid that averages about 52 mpg; of course, I'm only halfway through paying my car loan off. I did a quick Internet check and it looks like Sam's Club locally is charging about $4.17/gallon. That's expensive but I remember paying more. Of course, I haven't had to do much driving during the pandemic with much work done remotely. But the point is that gas stations are highly price sensitive. If and when I go to Sam's Club, I'll more often than not have to wait several minutes with other drivers wanting to save maybe a dime a gallon. And almost nobody scapegoated "greedy" oil companies or gas stations when prices crashed during the pandemic. Why are operators motivated to cut the price and simply keep the extra profit when costs go down? Competition and sales. Unsold product costs money and doesn't make profits; sales are voluntary transactions. High prices affect sales (the law of supply and demand). This is true whether or not the markup on product is "reasonable". If and when gas is expensive, I might cut down discretionary driving, combine errands, join a carpool at work, etc. Walmart has made a lot of profit with smaller margins. Progressives always spin this predatory pricing myth, e.g., Walmart undercuts smaller retailers to drive them out of business and once they're gone, hike prices back up and then some. That simply isn't reality; it's true that Walmart's volume purchasing provides leverage to negotiate discounts that can get passed along to consumers. But consumers have choices (including the Internet) and limited budgets; higher prices/markups attract competition.
But this fantasy of opportunistic pricing, of oil companies exploiting inflationary circumstances, high price collusion among operators, etc. has never made sense. If and when it happens, how do you explain when it starts or stops? Why would energy companies ever surrender this alleged pricing power? Oil is fungible. There are energy substitutes (e.g., EV's); I have seen charging stations at parking lots in my former north Maryland town. You can buy more fuel-efficient vehicles (like my hybrid).
Disingenuous intellectually dishonest progressives, like Comrade Bernie, will cherry-pick period endpoints to dress up their talking points. Biden, for instance, likes to compare when pandemic employment reached its lows, as "nonessential workers/businesses" were shuttered, in falsely claiming economic growth. Driving plummeted particularly in the first few months of the pandemic. (Of course, oil is used for other products besides gasoline.) But if you're pricing on a markup, your profit is reflected in your underlying costs, and if you're selling gasoline and people aren't driving in a pandemic, your profit will drop on volume. As the economy got back to "normal", driving picked up and so did profits. And if your primary cost (a barrel of oil) has tripled in price,you have to pass along those costs to consumers if you expect to be an ongoing enterprise.
Finally, the White House and progressives in general try to deflect criticism, including their part in restricting access to oil development on federal lad/offshore; Biden also shuttered the Keystone pipeline. Make no mistake--Biden is vested in Big Green and a climate change/anti fossil-fuel agenda. And there are other restrictions, such as environmentalist objections to drilling, e.g., in the Arctic Reserve. There are other issues beyond the scope of this post like easements for drilling and innumerable high-cost policies on energy development and transports (many of which aren't relevant to other global producers).
So the trite, misleading talking point is that there's a lot of leased acreage out there to begin with with nothing being done to develop them: why should we lease even more when they haven't done anything with what they already have? It's a complicated issue. It's not like all energy explorers go looking for giant spigots on the land and/or randomly shoot into the ground like Jed Clampett of the Beverly Hillbillies with a flow of "black gold, Texas tea". No, it's not like development is a short-term solution, but if the government were to reform regulations and liberalize exploration on federal lands, that would favorably affect expectations of future supply, a huge factor affecting the price of crude.
