Why is Biden pressing US energy companies before midterm elections?

Analysts' opinions in the economic press in the United States indicate that President Joe Biden's pressure on major US energy companies to increase production in order to reduce fuel prices at gas stations may negatively affect him.

Analysts specifically referred to the speech he gave at the White House last week on October 19, in which he held companies responsible for reducing fuel prices at gas stations, especially as it comes three weeks before the midterm congressional elections.

It is widely expected that the Democratic Party will suffer losses, losing control of the House and Senate in favor of the Republicans, according to Fox News.

In response to reporters' questions, Biden denied that his invitation to the companies had any political background. White House spokeswoman Karine Jean-Pierre was forced to defend the president's campaign in answering reporters' questions, denying that the administration's policy was aimed at “stopping the energy companies' business,” according to the Washington Post.

A Fox Business correspondent repeated the question to the press spokeswoman, asking how the White House can expect energy companies to respond to the president's calls while the administration's energy policy aims to stop their business.

The reporter's question is the general trend in most of the analyses that followed Biden's speech on energy, including from CNN, The Guardian, and Reuters.

These analyses highlighted the apparent contradiction in the administration's policy, which constantly declares the necessity of stopping investment in oil and gas and diverting investments to renewable energy.

Many observers and analysts conclude that the Democratic president's goal in pressuring energy companies is to get voters to blame them for rising gas prices at gas stations ahead of the midterm elections.

Companies are ignoring Biden

Biden said in his speech on Wednesday, addressing energy companies in the United States, “You will have to use the huge profits that you are making to increase production, refining, and derivatives. Invest in the US for the sake of the American people. Lower the fuel prices at the stations to be consistent with what you are paying for crude”. 

The president's campaign against US energy companies comes after the White House tried to prevent the OPEC+ alliance from reducing production to maintain market balance. In his speech, Biden also announced the release of 15 million barrels of crude from the strategic stockpile in December.

But the market was not affected by that announcement, as it was part of the plan announced by President Biden in August to release 180 million barrels of strategic stockpiles over a period of six months, according to E&E News.

However, some economic analyses indicated that the administration's attempt to put more oil on the market aims to reduce the profit margin of the American-producing companies. Therefore, these companies are not expected to respond to pressure from the White House. On the contrary, some of them see, according to an analysis of the Wall Street Journal, that these pressures may turn on the US administration.

It is known that energy companies are among the major funders of the electoral campaigns of candidates from both parties, and alienating companies would reduce their donations to candidates from the ruling party, increasing electoral pressure on Democrats, according to The Washington Post and The New York Times.

Observers in the US almost unanimously agree that next month's vote will be based on several factors, including inflation and high gasoline prices, which worries the ruling Democratic Party and the Biden administration.

In an attempt to reassure American companies, Biden announced that the administration would return to buying oil to fill stockpiles when the price fell to $70 a barrel. He pointed out that companies' increased production would always find someone to buy it, according to Politico.

However, the main concerns about the decline in the strategic stockpile to its lowest levels, at about 400 million barrels, do not mean only a shortage of crude, but more importantly, the withdrawal is made of light crude, which is suitable for most refineries in the US. This portends the possibility of a crisis in the event of an emergency need to resort to the strategic stockpile, according to E&E News.

Investing in refining

As for pressure on major energy companies to invest more in building refineries and increasing refining capacity in the United States, it is not expected to produce results. This is not because companies do not want to invest in refining and distribution activities, but because bureaucratic constraints and environmental requirements have prevented any significant refinery from being built in the US since 1976, although a number of smaller refineries have entered service in recent years, according to Washington Examiner.

Also, investing in the construction of refineries requires long-term plans to ensure the recovery of the initial capital before making profits. In light of the Biden administration's policies to reduce dependence on oil and gas and increase dependence on renewable sources, companies are reluctant to pump money into refineries and refining projects that may cause them losses, according to Real Clear Energy and Houston Chronicle.

The US has about 99 refineries to refine oil and produce derivatives, including gasoline and diesel, which are not sufficient to meet the increasing American demand for petroleum products, according to IBIS World. The most important and largest of these refineries is the Port Arthur refinery, in which Saudi Aramco has invested but not the major American companies, according to CNN.

Therefore, refining capacity in the US has been declining in recent years. According to the statistics and data website Statista, the refining capacity of American refineries decreased from 18.974 million barrels per day in 2019 to an average of 17.941 million barrels per day last year.

In addition to the difficulty of energy companies investing in building refineries as a result of government restrictions, a large amount of the price of fuel at petrol stations is fees and taxes collected by the government, according to Bloomberg.