White House takes aim at oil industry as gas prices create economic and politics rifts

Source: By Jeff Stein and Cat Zakrzewski, Washington Post • Posted: Wednesday, November 17, 2021

Biden pushes FTC to investigate what he calls “anti-consumer” behavior as inflation debate intensifies.

Sen. John Barrasso (R-Wyo.) talks about gas prices and inflation during a Senate Energy and Natural Resources Committee hearing on Capitol Hill on Tuesday in D.C. (Jabin Botsford/The Washington Post)

His attack, which top aides quickly amplified on social media, comes as the White House is attempting to hit back at critics who allege the Biden administration isn’t doing enough to counter GOP allegations that inflation and rising prices are holding back the economy. White House officials counter that the economy is in fact surging despite unease from many Americans.

“The bottom line is this: gasoline prices at the pump remain high, even though oil and gas companies’ costs are declining,” Biden wrote in a letter to FTC Chair Lina Khan. “The Federal Trade Commission has authority to consider whether illegal conduct is costing families at the pump. I believe you should do so immediately.”

Biden said that the price of unfinished gasoline is down 5 percent in the last month but prices at the pump are up 3 percent over that time, referring to this difference as an “unexplained large gap.” He doesn’t cite any specific illegal behavior on behalf of gas companies but asked the FTC to investigate whether any had occurred.

FTC spokeswoman Lindsay Kryzak said, “The FTC is concerned about this issue, and we are looking into it.”

Biden’s push on gas prices comes as the administration confronts broader political and economic challenges of rising prices for American consumers, with recent polling suggesting inflation represents a key vulnerability for the president. Prices on a range of products rose 6.2 percent over the last year, according to recent government data, and rising energy prices have emerged as one of the most nettlesome and visible parts of the price increases hitting the American economy.

Gasoline prices are just one component of the broader economy, but they can have outsize political influence. Unlike other items, they are posted on signs on streets all over the country, making it easier to see changes. And price increases can hurt lower-income and middle-income households hard because many drive long distances for work. Gas price concerns can be a particular issue around the holidays, when millions of Americans are driving long distances to see family members — especially as many postponed gatherings last year because of the coronavirus.

Fuel prices collapsed when the pandemic hit in 2020 but have risen by more than 50 percent amid a global resurgence in demand and ongoing supply disruptions in many parts of the world. Europe has faced an energy crisis with surprisingly weak wind power generation and a decline in Russian gas exports, while China has faced a coal shortage that led to a drop in economic production.

The U.S. has not been spared from energy price pressures, forcing the Biden administration into a difficult position. AAA said the average price for a gallon of gasoline in the United States was $3.41 as of Wednesday, up from $3.32 one month ago. Both prices are much higher than the $2.12 price for a gallon of gasoline one year ago, though demand was down sharply as a third wave of the coronavirus was ravaging the United States amid a huge spike in cases and deaths. Gas prices were higher roughly a decade ago.

There has been a growing outcry from Democrats and Republicans about the recent increase, though they have not agreed on the cause, and theadministration’s options to act without Congress are limited.

Some Democrats have called for a ban on crude oil exports, but some industry analysts have said this might do little to lower prices given the international nature of energy markets.

Senate Majority Leader Charles E. Schumer (D-N.Y.), meanwhile, has pushed the White House to tap the Strategic Petroleum Reserve to lower prices. Many industry analysts have said such a move is also unlikely to substantially lower prices, given that the reserve is not very large. Biden’s call for an investigation provoked an immediate response on Capitol Hill.

“This investigation is overdue, absolutely necessary, should be pursued vigorously and promptly,” Sen. Richard Blumenthal (D-Conn.) said at a confirmation hearing on Wednesday, which was attended by several FTC commissioners, including Khan. “The present monopolistic practices of these companies need to be exposed to what they are so consumers understand why prices are rising.”

The oil and gas industry has said that demand is rising faster than supply, pushing prices higher. It has also attacked proposals by Democrats to combat climate change and limit domestic production, alleging these efforts could make things worse.

“This is a distraction from the fundamental market shift that is taking place and the ill-advised government decisions that are exacerbating this challenging situation,” said Frank Macchiarola, senior vice president of policy, economics and regulatory affairs at the American Petroleum Institute. “Demand has returned as the economy comes back and is outpacing supply. Further impacting the imbalance is the continued decision from the administration to restrict access to America’s energy supply and cancel important infrastructure projects.”

Antitrust policy may represent one avenue for the Biden administration to take action, but the White House is constrained there because the FTC is an independent agency that the president cannot force to act.

Illustrating how the White House may hammer on the issue harder in an attempt to bend public opinion, two top Biden aides weighed in on Twitter after the Wednesday letter was sent.

“It’s wrong to price gouge — especially during a pandemic where hundreds of thousands have lost their lives,” wrote Heather Boushey, a member of the White House Council of Economic Advisers.

Bharat Ramamurti, deputy director of the White House National Economic Council, wrote that Americans would be paying nearly 25 cents less per gallon if the gap between the price of refined fuel and consumer prices was at its historical average.

Khan has recently said the FTC is stepping up its investigations of abusive behavior that could drive gas prices higher though they haven’t taken any major actions in recent months.

In an August letter to the Biden administration, she promised to deter unlawful mergers in the industry, as well as to ask staff at the agency to investigate abuses in the franchised fuel market. “I will continue to assess how the FTC can use its tools to police unlawful business practices in oil and gas markets, and I am committed to working with the Administration, independent agencies, and state attorneys general to address this concern,” she wrote.

Gas and oil firm collusion may be worth investigating but Biden’s argument is “a little thin,” as it highlights the disparity between prices and costs for only a short period of time, said Lucio Miranda, president of ExportUSA, an export consulting company that follows gas and oil prices.

“As I see it in the letter, basing this whole investigation on one or two months of data I’m not sure it’s going to hold water,” Miranda said, adding that factors such as higher transportation costs could help account for the disparity between the price of unfinished gasoline and what consumers pay at the pump.

Antitrust advocates whose views are echoed inside the administration have pushed for investigations into a number of recent mergers. FTC members have previously raised concerns about the impact of a $21 billion merger between 7-Eleven and Speedway, a convenience store chain with thousands of stores across the country.

“Gas would be cheaper if there were open and competitive markets in refining and among gas stations,” said Matt Stoller, an antitrust expert at the American Economic Liberties Project. “Competition policy is a core driver of inflation.”