Calling all fact checkers.
In a “Twitter Spaces” conversation on Tuesday, Sen. Sheldon Whitehouse (D-R.I.) and Rep. Ro Khanna (D-Calif.) pushed blatantly false and easily debunked claims about oil and gasoline prices and a windfall profits tax in yet another attempt to undermine the American energy industry.
The conversation comes a day after President Biden held a press conference at the White House calling for higher taxes on energy production and dubiously stating the industry isn’t pumping oil to help bring down gasoline prices.
Yet, the performance from Whitehouse and Khanna – which was hosted by the “Keep It In the Ground” activist group Stop The Oil Profiteering with the hashtag #BlameBigOil – took things to a whole new level of wrongness.
Let’s take a look:
Claim – windfall profits tax:
“But when President Carter did it and then President Reagan continued it in the early 1980s, production actually went up. And there was no decrease in production in those first few years.” – Rep. Khanna
Fact: Rep. Khanna’s claim is the exact opposite of what happened, according to the Congressional Research Services (CRS), the premier research organization for members of Congress.
CRS analyzed the windfall profit tax that President Jimmy Carter signed into law in 1980 but later had to be repealed because it was hurting domestic production and making the country more dependent on imports:
“From 1980 to 1988, the WPT may have reduced domestic oil production anywhere from 1.2 percent to 8.0 percent (320 to 1,269 million barrels). Dependence on imported oil grew from between 3 percent and 13 percent. The tax was repealed in 1988 because (1) it was an administrative burden to the Internal Revenue Service (IRS), (2) it was a compliance burden to the oil industry, (3) due to low oil prices, the tax was generating little or no revenues in 1987 and 1988, and (4) it made the United States more dependent on foreign oil.” (emphasis added)
If Rep. Khanna thinks a windfall profits tax will help increase domestic oil production, he just isn’t reading the history books. Moreover, if he thinks such a policy will help lower gasoline prices for American drivers, then he isn’t paying attention to the multitude of independent experts stating it will only cause prices to rise even higher because it will disincentivize production.
This included a Boston University professor who just yesterday warned against the President’s call for higher taxes, as Newsweek reported:
“Boston University professor Cutler Cleveland, who serves as the associate director of the Institute for Global Sustainability, told Newsweek that a windfall tax would likely be perceived by oil companies as an increase in the cost in producing oil and could lead to reduced domestic production of oil. This could add ‘upward pressure’ on gas prices. ‘There’s no plausible arrow you can draw from a windfall profits tax and lower gasoline prices,’ Cleveland said.” (emphasis added)
Likewise, Patrick De Haan of GasBuddy called it an “extremely bad idea.”
this is an extremely bad idea that will nearly guarantee to result in curbed desire to increase capacity in oil production and refining capacity and result in even higher prices in the years ahead. https://t.co/qFLX5I0HPy
— Patrick De Haan
(@GasBuddyGuy) October 31, 2022
Claim – oil prices:
“Oil companies set their own prices. They’re responsible for what is charged at the gas pump, so they can set whatever price they please and they get 100 percent benefit from their gouging.” – Sen. Whitehouse
Fact: Oil companies do not set the price of oil or gasoline.
The price of oil is determined by the global marketplace and supply and demand, as the Energy Information Administration clearly states:
“Crude oil prices are determined by global supply and demand. Economic growth is one of the biggest factors affecting petroleum product—and therefore crude oil—demand.”
And the price of oil is the biggest factor in determining the price of gasoline as EIA explains:
“The cost of crude oil is the largest component of the retail price of gasoline, and the cost of crude oil as a share of the retail gasoline price varies over time and across regions of the country.”
The Dallas Federal Reserve also describes how oil companies can’t control the price of gasoline:
“Since only 1 percent of service stations in the U.S. are owned by companies that also produce oil, U.S. oil producers are in no position to control retail gasoline prices.”
Finally, Whitehouse’s claim that oil companies are gasoline price “gouging” has been rejected time and again. It just doesn’t make any sense, if oil companies really did control prices, then why did they let the price of oil and gasoline crash during the COVID-19 pandemic when consumer demand dropped and they incurred billions of dollars in losses.
Claim – refinery investments:
“They’re not putting any money into new refineries. They’re not putting any money into increasing drilling or production that because Wall Street won’t let them.” – Rep. Khanna
Fact: American energy companies are investing more money into all of the above – drilling, production, and refining capacity.
Last week’s earnings reports showed that domestic energy giants Chevron and ExxonMobil doubled down this year on production in the Permian Basin, with both companies reporting record quarterly production in the resource-rich basin. EIA data shows that domestic crude production is on track to surpass pre-pandemic highs in 2023.
To meet the demand for gasoline, domestic refiners are also running at near-peak capacity. On its third quarter earnings call, ExxonMobil emphasized its work on the Beaumont refinery expansion in Texas, which will add a significant amount of new domestic refinery capacity within the next year:
“We boosted overall refinery throughput to its highest quarterly level since 2008, responding to tight market conditions, and we continued to make progress on the Beaumont refinery expansion, which will increase capacity by about 250,000 barrels per day in the first quarter of 2023.” (emphasis added)
It’s true that domestic energy companies are not building new refineries from the ground up. Instead, companies are focused on maximizing throughput at existing refineries and investing in expansions to add refinery capacity. But, this strategy makes sense in light of comments made on Tuesday by Rep. Khanna, who claimed that investors don’t think oil and natural gas assets will “pay out” ten years from now.
Bottom Line: Increasing U.S. oil production is a major solution to help stabilize oil prices and reduce energy costs for consumers. But policies like a windfall profits tax would have the opposite effect.
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