President Joe Biden wrote to Valero Energy and other U.S. oil refiners to chastise them for what he said was profiteering off soaring gas prices. And in a bid to lower those prices, he also ratcheted up pressure on these companies to boost production.
“At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable,” Biden said in a letter sent Wednesday to seven top industry executives, including those at Exxon Mobil and Shell.
The letter is part of an effort by the president in recent weeks to point the finger at oil companies and refiners for the pain consumers are enduring at the pump. Record-breaking gas prices have been highlighted as a political liability for the Democrats heading into the November midterms.
San Antonio-based Valero, the world’s largest independent petroleum refiner, said in a prepared statement Wednesday, “We have already been in dialogue with the Administration on energy issues and remain committed to working with the government to ensure consumers have access to reliable and affordable energy.”
The average price of a gallon of gas in Bexar County was $4.67 on Wednesday, AAA reports. That’s lower than the Texas average of $4.69 and the national average of $5.01. A round-trip drive to Austin in the Ford F-150, Texas’ most popular used vehicle, that would have cost $17 in gas a year ago will cost around $32 today.
As gas prices have risen sharply, Valero and other oil companies have not fully restored the refining capacity they reduced during the early days of the pandemic.
Valero produced an average of 2.8 million barrels of gas per day in the first quarter this year, 16% higher than the first quarter last year but still less than the 2.9 million it produced in the first quarter of 2019.
Existing capacity can’t stretch much to meet the new demand for gas, said Gary Simmons, Valero’s chief commercial officer in an investor call in March. “I think the markets will have to balance more on the demand side,” he said.
However, the company has taken some steps to increase output. It recently canceled a planned month-long shutdown of a crude unit at its Memphis, Tennessee, refinery, Bloomberg News reported this week.
Tight supply and renewed demand have driven strong financials for Valero, San Antonio’s largest publicly traded company.
In the first quarter this year, Valero raked in hundreds of millions of dollars in profits. The company reported adjusted net income of $905 million, rebounding from an adjusted net loss of $666 million over the same period in 2021. That resulted in a net profit margin of 2.4% — up 168% from the year before.
These are the kind of profit margins Biden took aim at in his letter.
“The lack of refining capacity — and resulting unprecedented refinery profit margins — are blunting the impact of the historic actions my administration has taken to address Vladimir Putin’s Price Hike and are driving up costs for consumers,” Biden said.
Biden’s letter said the principal cause for high gas prices was Russian President Vladimir Putin’s war on Ukraine. Western countries’ restrictions on Russian oil imports, including a total ban in the United States, have strained supply at a time when demand is rising amid a waning pandemic and summer travel season.
The ban affected Valero more than most, as it was the United States’ biggest importer of Russian oil, accounting for one-eighth of the company’s supply. But even with its Russian imports cut off, Valero leads the industry in flexibility for the kind of oil it can refine, observers report.
Biden said his administration was prepared to take all “reasonable and appropriate” steps to help companies boost output in the short term.
He called on the companies to provide the Energy Department with an explanation about their reduced capacity, and what could be done to address the rising gas prices.
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