Video narrated by Jessica Burbank

Gas prices are going back up and people want to know why. They were already high, they started to come down, but now they’re climbing again. We hear a lot of different reasons as to why that is.

[Ted Cruz]: Little bitty stickers that show up on gas pumps all over the country with a picture of Joe Biden pointing to the price, saying, I did that.

So what’s really going on?

At the beginning of the pandemic, the price for a barrel of oil went to zero. People were staying home, they weren’t driving, so demand for gas was really low. A bunch of people bought up oil when it was low, so they could sell when it was high in the future, when people started driving again. But speculation in the oil market became a huge problem.

The oil market went into “backwardation” — that means the spot price for a barrel of oil was higher than the futures price. In other words, if you bought a barrel of oil today, you would pay more for it than if you promised to buy one in the future. We typically expect prices for goods and services to go up over time, so this was a really bad sign.

Companies that produce oil were enjoying record profits when prices started soaring. And despite supply constraints, American oil companies didn’t want to increase production. That would mean building new rigs and drilling new wells, which is expensive. They were unwilling to make that investment and spend that initial money because it would cut into their profit margins. 

They also expected the price for a barrel of oil to go back down soon for a few reasons. If another variant hit and people stopped driving again, the price for a barrel of oil would go back down when demand for gas would go back down. They were also worried the people hoarding the oil from the beginning of the pandemic would decide to sell. When those barrels of oil hit the market, that would increase supply and drive prices down. They also foresaw Biden tapping the emergency reserves, which would increase domestic supply of oil, too.

But this is really a story about greed, with prices so high that they’re enjoying record profits despite not producing any more oil while we’re paying an arm and a leg to fill up our tanks. They could actually produce less oil and make more profit than they usually make. And that’s exactly what they did.

Oil company executives promised their shareholders 2 percent growth, and no matter what, they promised not to increase their production. They want the oil companies to prolong the extraction of oil from their reserves so that they can continue to profit year over year.

The CEO of a major oil company, Pioneer Natural Resources, Scott Sheffield, said:

“Whether it’s $150, $200, or $100 for a barrel of oil, we’re not going to change our growth plans.”

In August, Exxon alone reported a quarterly profit of $17.9 billion. That is the highest quarterly profit reported by any oil company in history. Chevron reported $11.6 billion, Shell reported $11.47 billion, and BP reported $8.45 billion in quarterly profits.

If they were raising prices to just account for the economic hits they took during the pandemic, constrained supply, supply chain issues, they would have consistent revenues and consistent profits. But instead they raised prices far more than necessary. That’s why they’re enjoying record profits. They were capitalizing on the constrained supply at the beginning, but now they’re keeping up their price gouging to get richer.

So what are they doing with all this additional profit?

Stock buybacks. They are treating the stock market like it’s a casino that they’re gambling in, but they also get to be the dealers. Stock buybacks are when a company buys up their own stock, leaving less shares on the market for other people to buy. This inflates their earnings per share metric. Higher per share earnings makes the stock look good on Wall Street. Existing shareholders benefit from this because it increases the value of the stock they already own.

Exxon Mobil announced plans to buy up $30 billion of its own stock by the end of 2023. Chevron increased its top-end buyback guidance by $15 billion per year. But what would a responsible company do with their extra revenue, if not buy back their stock? They could have spent it on research and development, invested in new infrastructure and technologies. They could have lowered prices for consumers, or, don’t know, is there anything wrong with the energy industry?

Oil companies are literally destroying our planet. They should be investing in transforming our energy sector so we’re not so reliant on carbon emitting fossil fuels that are bringing our planet closer to 2 degrees of warming, which would be a mass extinction event. We need our energy sector to make this shift so we can literally survive.

Greedy oil companies are not only forcing us to pay prices we can hardly afford, they’re jeopardizing our planet’s future as well.