When gas prices rose 150 percent from June 2020 to June 2023, politicians didn’t hesitate to blame corporate greed. Yet over the last six months, gas prices have fallen 33 percent. Are politicians congratulating oil companies for displaying altruism? No. Market skeptics only see prices through the eyes of greed. Prices fall because of “market forces” but rise because of “greed.”
Consider ExxonMobil, the largest U.S. oil company. From 2010 through 2014, Exxon’s after-tax profit averaged $9.1 billion per quarter. Starting in 2015, its profits fell more than 50 percent, to an average of $3.9 billion per quarter, yet no politician thanked Exxon for its generosity.
Then came COVID. In 2020, the company lost an average of $5.6 billion per quarter, yet no politician applauded Exxon’s selfless magnanimity.
And politicians were right not to do so.
Exxon was neither generous in the late 2010s nor magnanimous in 2020. Exxon responded to market forces: paying the prices that markets dictated and selling at prices that markets allowed.
But then came the inflation of 2021, the war in Ukraine and the mess that was once our supply chains. Again, market forces moved prices, boosting Exxon’s average quarterly profits for 2021 and 2022 to $9.8 billion. But unlike the decline in profits over the prior decade, somehow, this profit increase was due to a character flaw. Exxon was greedy.
We can’t have it both ways. If the prior decade’s decline in profits wasn’t due to altruism, then the subsequent rise in profits wasn’t due to greed.
Few might shed tears over a 50 percent decline in profits that still leaves a company earning multi-billions of dollars of profit. But the focus on raw dollars ignores something important. Those profits don’t fall out of the sky. They require that investors hand over hundreds of billions of dollars to pay for the equipment, technology and research needed to pull oil out of the ground — often out of a ground that’s thousands of feet under an ocean.
ExxonMobil uses $370 billion worth of assets to do what it does. Every penny of those assets represents either a loan, on which it must pay interest, or an equity investment, for which it must generate returns. From 2010 to the present, Exxon’s average quarterly profit represents less than a 7 percent return on those assets. Of late, a 7 percent return barely compensates for inflation.
Politicians argue that rising oil prices are due to price gouging by monopolistic companies. If Exxon, the fourth largest oil company on the planet, is a monopolistic company selling a necessity, and the best it can do over the last two decades is to generate a 7 percent return on its assets, then perhaps our fear of monopolistic companies is overblown.
High gas prices aren’t due to oil executives suddenly realizing that greed is profitable. High gas prices are due to wars, which are caused by governments. High gas prices are due to supply chain disruptions, the latest caused by governments. High gas prices are due to inflation, typically caused by governments printing money to pay for unaffordable spending.
But you won’t hear politicians looking for the actual cause of high gas prices. Instead, you’ll hear them placing the blame anywhere other than where it belongs. Politicians don’t care whether oil companies are greedy or altruistic or neither. Politicians care about using oil companies as a smokescreen to hide from the voters’ wrath.
