$8.5 billion in profits for BP as prices rose during the war between Russia and Ukraine
The windfall comes as consumers around the world are feeling the pain of decades of high inflation and a cost-of-living crisis that is especially painful at the gas pump. Crude oil prices rose above $120 a barrel in March and again in June before falling back, and are still up 34 percent from a year ago. The national average gas price in the United States jumped in tandem, to above $5 a gallon for the first time, AAA reported, although prices are now falling.
President Biden has warned the industry that he is considering all options to curb their profits if gas prices remain high. The president and other Democrats have consistently spoken out against oil industry earnings at a time when drivers are struggling to recoup the costs of filling up.
While Biden’s tools are limited — there isn’t enough congressional support to advance his plan for a windfall tax — that could change if he declares a “climate crisis,” which the administration has said is possible. Energy analysts predict that if gas prices start to soar again, Biden could use his presidential powers to assert more government control over domestic oil and gas producers.
Oil executives have pushed back at the Biden administration’s criticism, saying the only way to remedy the imbalance between supply and demand in global oil markets is to pump more oil.
“I want to be clear that Chevron shares your concerns about the higher prices that Americans are experiencing,” Chevron CEO Mike Wirth told Biden in an open letter. “And I assure you that Chevron is doing its part to help meet these challenges by increasing capital expenditures to $18 billion by 2022, more than 50% higher than last year.”
Analysts also note that the oil market is intensely cyclical. The industry suffered during the 2008-2009 financial crisis, again between 2014 and 2016, and most recently during the first two years of the coronavirus pandemic, says Pavel Molchanov at Raymond James investment bank.
“The industry is currently enjoying record levels of profitability, but two years ago the covid-related commodity crash was an epic debacle,” Molchanov said in an email.
BP’s second-quarter results, up from $6.2 billion in the first quarter, were driven by strong refining margins, “continued exceptional oil trading performance” and higher fuel prices, the company said in a statement. An increase in global demand and the war in Ukraine has been the key to the price rise, and has directly increased the company’s profits.
“Today’s results show that bp continues to perform while transforming,” CEO Bernard Looney said in a statement. “We do this by delivering the oil and gas the world needs today – while investing to accelerate the energy transition.”
As a result of the high profit, the company said it would increase dividend payments by 10 percent, to 6.006 cents per common share, more than it had previously expected. “This increase reflects the underlying performance and cash generation of the business,” the company said.
BP said it expects oil and gas prices to remain high into the third quarter “due to ongoing disruptions in Russian supply” and “reduced levels of spare capacity.” The geopolitical outlook has also led to a shortage of European gas supplies that are “heavily dependent on Russian pipeline flows”, which is expected to keep prices “high”.
Shell has announced even bigger share buybacks totaling $6 billion, while Exxon reported distributing $7.6 billion to shareholders when dividends are included.
Patrick De Haan, head of petroleum analysis at GasBuddy, said major oil companies appear to be investing in increasing supply. But in the short term, their focus appears to be on shareholder value, he said.
President Biden has accused American oil giants of taking advantage of the tight circumstances. Speaking at the Port of Los Angeles in June, he said: “Exxon made more money than God this year.” The company pushed back, admonishing his administration for its attempts to “criticize, and at times vilify, our industry” as oil companies deny accusations that their policies keep prices artificially high.
In May, the UK government announced a 25 percent windfall tax on the profits of oil and gas companies that will be used to help low-income households struggling with a sharp rise in the cost of living. US legislators has considered a similar tax, but it is unlikely to pass in the evenly divided Senate.
British lawmaker and opposition Chancellor of the Exchequer Rachel Reeves criticized BP’s profits, tweeting: “People are worried sick that energy prices will rise again in the autumn, but again we see eye-popping profits for oil and gas producers.”
Left-wing politicians and advocacy groups in both the US and UK called for additional taxes on oil companies’ windfall profits.
Greenpeace UK tweeted “There is something particularly obscene and cruel about gas companies like Shell and BP making record profits while consumers struggle to keep warm this winter.”
Rep. Rosa De Lauro (D-Conn.) tweeted “Corporate monopolies are ignoring their market power, hurting families at the pump and driving up inflation,” later adding, “Americans don’t deserve to be priced out.”
