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LONDON – BP on Tuesday reported second-quarter profit of $8.5 billion, its biggest surprise in 14 years, becoming the latest oil giant to benefit from higher crude prices as that Russia’s war in Ukraine disrupts global energy markets.
Just days earlier, the two biggest US oil companies, ExxonMobil and Chevron, reported that their profits had roughly tripled in the second quarter, while London-based Shell and France’s TotalEnergies also report highly successful results. Second-quarter profits for these five companies now total more than $55 billion, an impressive turnaround from the early months of the coronavirus pandemic.
Madness comes like consumers around the world are feeling the sting of the highest inflation in decades and a cost-of-living crisis that’s especially painful at the gas pump. The price of crude rose above $120 a barrel in March and again in June before retreating, and remains up 34 percent from a year ago. The national average price of gas in the United States rose at the same time, to more than $5 a gallon for the first time, AAA reported, although prices are now falling.
President Biden has warned the industry that it is considering all options to curb its profits if gas prices remain high. The president and other Democrats have consistently criticized the oil industry’s profits at a time when drivers struggle to cover the cost of filling up.
While Biden’s tools are limited, there isn’t enough congressional support to advance his windfall tax plan, that could change if he declares a “climate emergency,” as 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 rejected criticism from the Biden administration, saying the only way to remedy the supply-demand imbalance in global oil markets is to pump more oil.
“I want to be clear that Chevron shares your concerns about the higher prices 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% more than last year.”
Analysts also point out 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, said Pavel Molchanov of investment bank Raymond James.
“The industry is currently enjoying record levels of profitability, but two years ago the covid-related drop in commodities was an epic debacle,” Molchanov said in an email.
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BP’s second-quarter results, up from $6.2 billion in the first quarter, were driven by strong refining margins, “an exceptional performance of the oil business” and higher fuel prices, the company said in a statement. Rising global demand and the war in Ukraine have been key to the price hike, directly increasing the company’s profits.
“Today’s results show that bp continues to perform while transforming itself,” CEO Bernard Looney said in a statement. “We do this by providing the oil and gas the world needs today, while at the same time investing to accelerate the energy transition.”
As a result of the high profits, the company said it would increase dividend payments by 10 percent to 6.006 cents per common share, more than previously expected. “This increase reflects the underlying performance and cash generation of the business,” the company said.
BP, formerly British Petroleum, said it expects oil and gas prices to remain high in the third quarter “due to continued Russian supply disruption” 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 are expected to keep prices “high”.
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Shell has announced even larger share buybacks totaling $6 billion, while Exxon reported distributing $7.6 billion to shareholders when dividends are included.
Patrick De Haan, head of oil analysis at GasBuddy, said major oil companies appear to be investing to increase their supply. But in the short term, his focus appears to be on shareholder value, he said.
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Biden has accused the American oil giants of taking advantage of such difficult circumstances. Speaking at the Port of Los Angeles in June, he said: “Exxon made more money than God this year.” The company pushed back and admonished its administration for its attempts “to criticize, and sometimes vilify, our industry.” Oil companies deny accusations that their policies are keeping prices artificially high.
In May, the British government announced a 25% windfall tax on the profits of oil and gas companies, revenue that would be used to help low-income households struggling with a sharp rise in the cost of living. US lawmakers have considered a similar tax, but it is unlikely to pass in an evenly divided Senate.
British MP and opposition finance minister Rachel Reeves criticized BP’s profits, tweeting: “People are worried about energy prices going up again in the autumn but once again we see spectacular profits for oil and gas producers”.
Left-wing politicians and advocacy groups in both the United States and Britain called for additional taxes on oil company windfalls.
Greenpeace UK tweeted: “There is something particularly obscene and cruel about gas companies like Shell and BP making record profits while consumers struggle to stay warm this winter.”
Rep. Rosa DeLauro (D-Conn.) wrote on Twitter: “Corporate monopolies are overreaching their market power, hurting families at the pump and driving up inflation. … Americans don’t deserve a raise price at the pump”.