In the run-up to the November election, John Fetterman is practicing his best impressions of Bernie Sanders and Elizabeth Warren, as he rages against profits and, best of all, corporate greed.
In recent fundraising emails and tweets, Fetterman has deployed some extraordinarily sloppy arguments against oil and gas producers, arguments that need some, ahem, refining?
“Let’s talk about gas prices. Just last week, gas prices hit a record high of $5.07 per gallon in Pennsylvania, an outrageously high price that is impacting families across Pennsylvania,” Fetterman wrote in a fundraising email on June 17.
“But the truth is, if it wasn’t for the greed of oil companies, prices likely wouldn’t be this high,” he continued.
“This past week, crude oil was going for around $120 a barrel — the highest price we’ve seen since mid-2014. But back then, a gallon of gas only cost about $3.50.
“Oil companies don’t need to be charging this much for gas — they’re just doing it to make excess profits. 💰💰💰”
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The bags of money emojis is a classic Fetterman touch. While Fetterman’s political beginnings were underwritten by his family’s immense personal wealth, he has styled himself as a working-class icon and populist against corporatism.
The first and biggest problem with Fetterman’s analysis is that he fails to account for inflation. In ordinary times, inflation might not amount to a huge price increase across any eight year stretch. But because of the inflation of just the last two years — all under President Biden’s watch — it becomes an outsized factor.
The $3.50 gallon of gas from 2014 that Fetterman refers to would now be priced at $4.32 for Pennsylvania drivers, when adjusted for inflation. Even if the barrel of oil is the same price, every other input into the cost of a gallon of gasoline has skyrocketed — from transportation, to workers’ wages, to the station owners’ rent.
In other words, of the additional $1.50 in the retail price per gallon that Fetterman is screaming about, about half of that difference is explained by inflation.
The heavy irony is that in the same fundraising email, Fetterman was also complaining about…inflation.
Granted, some of the inflationary pressure comes from the high oil and gas prices, but not the majority.
For example, in May, total inflation rose 8.6 percent, while “core” inflation — meaning the inflation gauge that excludes food and energy — rose six percent.
Fetterman’s attack is fundamentally misguided in other ways. For example, he blames oil companies for the price of gas, but oil companies primarily produce barrels of oil which they sell to refiners. Those refiners then sell to the retail stations. In his desperation to smear the greedy oil companies — a boogeyman that is always an easy sell to an angry public — he allows you to think the end retailer is the same as the oil company — but they’re not.
According to the American Petroleum Institute, “refiners own less than five percent of the 145,000 retail stations” across America.
Fomenting class resentments and designing misleading arguments about producers in the American economy ought to be as morally — and electorally — unprofitable a business as there can be.
Fetterman’s use of 2014 as a baseline year is also instructive because in the second half of that year, oil prices saw a historic collapse, and the price of retail gas collapsed along with it.
If greedy oil companies can set any price or profit margin they want, why did they let prices collapse in 2014? Mr. Fetterman won’t try to explain this, because he can’t.
What about the end retailer? Perhaps then, those entities are charging too much?
The rest of the gap between the 2014 and 2022 price-per-gallon cost of gas is likely attributable to lost refining capacity, which reduces supply and makes the wholesale price more expensive for the end retailer.
“U.S. refining capacity has fallen by 5.4 percent, or 1.03 million bpd to 17.9 million bpd since it peaked in 2019 at 18.98 million bpd. Capacity in 2021 dropped 4.5 percent to 18.13 million bpd,” according to a Reuters report published just days after the Fetterman email. The same Reuters report notes that “current pump prices are not historically high in inflation-adjusted terms.”
These drops in refining capacity are wholly understandable given that the Biden administration and congressional Democrats have targeted oil producers, gas refiners, and gas retailers for extinction over concerns about climate change.
There’s evidence that producers are doing all they can to get more supply to the market. Refining capacity is running higher, percentage-wise, than in 2014.
In the first six months of that year, the nation’s refining capacity only crossed the 90-percent threshold six times (measured in weekly divisions), according to federal data. So far this year, it has crossed the 90-percent mark fifteen times. The last ten percent of the nation’s refining capacity does not yield the same as the first 90 percent. It involves more overtime, and strains production resources in other ways that are more costly — what economists call “diminishing returns.”
A report in the last week by NPR backs all of this up, headlined, “How a massive refinery shortage is contributing to high gas prices.”
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Whether profit margins for gas retailers have increased is debatable. A recent analysis by Barron’s claims “that the profits of gas stations are actually down this year.” Some retailers in Canada are asking regulators for higher profit margins, claiming that credit card fees are dragging them under.
Gas retailers deal with thin margins to begin with.
“Generally, the markup (or ‘margin’) on a gallon of gas is about fifteen cents per gallon (gross profit before expenses). Factoring in expenses, which include rent, utilities, freight, labor and credit card fees, a retailer is left with about two cents per gallon in profit,” according to a gas retail association based in West Virginia.
Those retailers, by the way, are fighting their own battles with inflation, along with staffing shortages and swings in demand that are outside the norm. When gas prices rise, so do gas thefts. Add in the uncertainty caused by inflation and the war in Ukraine, and any remaining basis for Mr. Fetterman’s attack fully evaporates.
Fetterman will also tell you oil company profits are up. This is true. But he neglects to mention that profits in the oil business are volatile. “Exxon, for example, suffered a historic net loss in 2020, its worst performance in decades,” according to NPR. The circumstances that year were dismal for other producers.
Finally, it is essential to note that a barrel of American oil is much more environmentally sustainable to produce than one from Russia, Saudi Arabia, or the Canadian tar sands. While prices are up, oil and gas consumption for American consumers is not down — most people cannot afford to eschew personal transportation even if it costs them. And American-produced oil adds to international security, as opposed to oil that comes from Russia.
We’re sure Mr. Fetterman, who did not return our requests for comment on his email, must flatter himself when making these arguments. But fomenting class resentments and designing misleading arguments about producers in the American economy ought to be as morally — and electorally — unprofitable a business as there can be.
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