Supermajors are set to report bumper profits for the second quarter thanks to the surge in oil and gas prices, driven higher by the hostilities between the United States, Israel, and Iran. This is a problem for governments—notably the Trump administration, but politicians in Europe are angry at Big Oil’s good fortune again.
Oil prices soared fourfold earlier this year after U.S. and Israeli strikes on Iran prompted the latter to shut traffic via the Strait of Hormuz—something Tehran had been threatening it would do for decades but had never before actually done. The shock of this development gave oil and gas prices an initial kick, and the resulting production squeeze added momentum, sending Brent crude to over $100 per barrel. While oil prices never got as high as they were in 2022, governments around the world were generally in a weaker financial position than they were four years ago, making the situation more challenging.
In the United States, gas prices topped $4 per gallon as a result of the war, prompting warnings of a potential recession unless the conflict is resolved quickly. President Trump himself singled out Big Oil as the culprit for the high prices at the pump, blaming the industry for price-gouging and even ordering a federal investigation.
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“The big Oil Companies are not dropping their price at the pump commensurate with the sharply lower prices they are paying for Oil. Those prices are dropping like a rock! In other words, customers are being ‘gouged’,” Trump wrote on TruthSocial at the end of last month. “I have instructed the DOJ to immediately start looking into this. Gasoline prices better start going down a lot faster than what I’m seeing!”
In what looked like a barrage of warnings, the U.S. president also wrote, “Gasoline Retailers must get their Prices down, IMMEDIATELY! They’re too high considering that Oil is now at $68 a Barrel, and heading south. The Retailers must quickly react to this statement, and do what they know is right — DROP YOUR PRICE FOR OUR GREAT AMERICAN PEOPLE!” In the same TruthSocial post, Trump told fuel retailers to “Start targeting around the $2.50 a Gallon number.”
The industry has, naturally, explained that it does not have full price-setting power when it comes to retail fuel prices, which are closely linked to international crude oil prices—but not in full sync. A recent Energy Intelligence column provided an example of the relationship between retail fuel prices and crude oil benchmarks by noting how Ukrainian drone attacks on Russian refineries had squeezed the supply of diesel and jet fuel in one of the world’s top exporter, prompting an increase in diesel and jet fuel production—and exports by U.S. refiners. However, boosting diesel and jet fuel production has inevitably resulted in less gasoline production and, as a result, higher prices, according to the author of the column.
Yet the war disruption also continues to exert its pressure on energy commodity prices, and producers of those commodities are benefiting through, if one could put it this way, no fault of their own. But they are once again in the crosshairs of unhappy politicians because they are a really big target.
Exxon is estimated to have booked $15.9 billion in adjusted net income, and Chevron’s earnings are seen at nearly $10 billion for the second quarter, more than threefold for both supermajors compared to their first-quarter profits, per analyst estimates compiled by LSEG and cited by Reuters earlier this month.
This week, the Financial Times cited similar figures, reporting Exxon was seen booking net profits of $19 billion for the second quarter and Chevron reporting $9.7 billion in earnings. For both, second-quarter earnings would be over three times higher than what they reported for the first quarter of the year. This would set both on a direct collision course with the president, who campaigned on turning the United States into an energy dominant global power with the help of those same supermajors.
Refiners are also targets, with Marathon expected to report its highest profits in four years, according to FactSet projections cited by the FT. Valero, another refining major, will also book a very strong quarter, no doubt sparking further anger in the White House.
“Investors will see returns, governments will see red,” ClearView Energy Partners managing director Kevin Book said, as quoted by the FT. “The administration is clearly eager for some sort of fuel price relief ahead of the election, but the industry did not cause prices to rise, the war did.”
Meanwhile, in the EU, a group of European Parliament members from Green parties have demanded that Big Oil pay for making the bloc “heatwave proof”, accusing the industry of enriching itself on climate destruction. “The five biggest fossil fuel companies must foot the bill to make sure all public buildings and homes in the EU are heatwave-proof, human-friendly, cool spaces,” the MEPs wrote.
By Irina Slav for Oilprice.com
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