Sky-High Gas Prices Are the Cost of Wall Street Domination, Not Supply and Demand
The following is a lightly edited transcription from The Punch Out with Eugene Puryear, a daily news podcast that comes out Monday through Friday, 5pm ET. Subscribe here.
Major oil and gas companies are swimming in cash right now due to the increase in oil prices that began with the war in Ukraine. Of course, those companies are claiming that it's all just the cost of doing business, supply and demand, and that sadly, there isn’t much they can do to avoid massive increases in prices at the pump.
On its face that makes sense — the war in Ukraine has increased the price of oil. But the question really is: Does it necessarily have to increase the price of gas?
The real answer is no.
The red flag showing that oil companies are taking us all for a ride is the rise in stock buybacks and dividend payments among big oil corporations. As a new study from Friends of the Earth, Bailoutwatch and Public Citizen notes: “In the first two months of 2022, seven companies’ boards authorized their corporate treasuries to buy back and retire $24.35 billion in stock — a 15% increase over all of the buybacks authorized in 2021. The total since the price spikes began is $45.6 billion.”
Stock buybacks are when a company buys back its own stock as a bonus for investors. Essentially it's a way to let investors cash out for more than they bought in for. Since it reduces the number of shares, it also means that the value of the stock that's left goes up.
Dividends are basically the same thing; they’re a premium a company pays you for holding its stock. Both serve the same purpose — to make it valuable to hold their stock and thus to attract more investment.
So, clearly, when companies are spending huge sums buying back stock, that's money they could have used to absorb other costs, such as providing some cushion to people buying gas. They could instead use those profits to prevent cost increases from spiking gas prices. But why would they help you when they can help a handful of rich investors on Wall Street out with an extra $45 billion?
The report, which looked at the 20 largest oil and gas companies in the US, also noted:
“More than half the companies boosted their dividends, often extravagantly, in January
and February. Of the 11 companies raising their dividends, nine were increases of more
than 15% and four were increases of more than 40%. Eleven companies have increased
their payouts by at least 100%, some from zero, since the first quarter of 2021.”
It continued: “Six companies have begun paying additional dividends on top of their routine quarterly payments, including by implementing new variable dividends based on company earnings — a way of directing windfall profits immediately into private hands without
any possibility of investment, employee benefits, or other uses. So far in 2022, these
companies have started paying out an initial $3 billion in special windfall dividends.”
One notable thing from the report deals with the Dallas Federal Reserve bank’s survey of oil and gas executives in March. The majority stated that they were holding back investment into their companies because of “investor pressure to maintain capital discipline…despite high oil prices.” Almost none cited regulations or lack of capital for their lack of new investment.
This provides an important window into the current fossil fuel industry. It suggests that, on the one hand, most investors feel that a transition to non-fossil fuels is coming, so there’s no point in investing hugely in such operations — better to just hold a limited amount and get what you can while the fuel still burns. This is undoubtedly why these companies are so eager to shovel cash to rich investors, to offset the feeling that these investments could soon become stranded assets as oil and gas infrastructure is less needed.
Furthermore, it shows the oil industry’s constant talking point that they are unable to expand and conduct new drilling because of climate activists is not really correct. It’s the investors — who they will never openly blame. The only way they can really overcome this investor demand to show “discipline” is to defeat the vision of a clean energy transition altogether.
Oil companies are getting us coming and going. They are making huge profits on the rise of the price of oil right now, using those profits to boost investment in the industry, and then on the other side pretending like the only way to resolve the issue of high prices is to drill more, whatever the consequences are to the planet.
While profiting from high prices, they are then using anger about those prices to further destroy the planet we all live on — again, to their benefit. What an amazingly dirty cycle. It’s just even more evidence that there isn’t a way out of our climate catastrophe as long as capitalist market incentives are in control.