Biden probe of gas prices 'deflects' bigger problem of inflation, unpopularity

WASHINGTON (SBG) — Suffering the political fallout from soaring gas prices, President Joe Biden called on the Federal Trade Commission to launch an investigation into whether "illegal conduct" by oil and natural gas companies is leading to cost increases at the pump.

In a letter to the chair of the Federal Trade Commission, President Joe Biden accused petroleum producers of "anti-consumer behavior," suggesting they were manipulating prices. "[P]rices at the pump have continued to rise, even as refined fuel costs go down and industry profits go up," Biden wrote. "I do not accept hard-working Americans paying more for gas because of anti-competitive or otherwise potentially illegal conduct."

An FTC spokesperson confirmed that regulators were concerned about potential improper actions by energy companies and were "looking into" the issues raised by the president.

Biden may have found an easy target in the oil and natural gas companies, but some argue it's a diversion from the president's real problems: rising inflation and his growing unpopularity.

Drivers are experiencing sticker shock every time they fill up their tanks. The national average price for gasoline is $3.41, according to AAA, up $1.29 from the unusually low price year ago. At the same time, the inflation index hit 6.2% for consumer goods, the highest it has been in 30 years.

As consumers feel the pinch of higher costs at every turn, many are pointing the finger at the White House. A recent Washington Post-ABC News poll found about half of respondents blamed Biden for the current inflation. Just 39% approved of his handling of the economy. The strains on Americans' spending power has also led to Biden's approval rating to plunge to 41%, down 10 points since August.

In light of these challenges, the White House has pledged to counteract the rising energy costs and publicized attempts to do so. The White House announced Thursday it would use money from the $2 trillion coronavirus relief bill to offset higher home heating costs this winter. Spurred by Democratic lawmakers, the administration has considered tapping the Strategic Petroleum Reserve. Biden asked the international oil cartel OPEC to boost production several times and was rebuffed. The administration is also looking to limit U.S. gas exports and reportedly considering loosening some environmental restrictions for oil refineries.

Experts doubt the letter to the FTC will result in significant action against oil and gas companies, or result in lower energy costs, though the effort may help Biden avoid further blame.

"The president realizes that high gas prices are bad for his approval rating and bad for the Democratic Party's hopes in November 2022," said Mark Jones, a political science professor at Rice University. "By calling for this investigation, he's trying to deflect public attention from the root cause, which is a combination of inflation and insufficient oil production in the United States."

The American Petroleum Institute (API) called Biden's request for an FTC investigation "a distraction" from market factors driving higher prices. The lobbying group argued the administration's "ill-advised" energy policies were at fault.

"Rather than launching investigations on markets that are regulated and closely monitored on a daily basis or pleading with OPEC to increase supply, we should be encouraging the safe and responsible development of American-made oil and natural gas," wrote Frank Macchiarola, API's senior vice president for police, economics and regulatory affairs.

GOP Sen. Bill Cassidy of Louisiana piled on, arguing the Biden administration was "doing everything to sink the U.S. oil & gas industry." He tweeted, "Now they want to blame U.S. oil companies for the sky-high prices @POTUS's policies created."

Independent Sen. Angus King of Maine rejected attempts to blame Biden for the oil price spike. "Oil is a worldwide commodity," King told Sinclair Broadcast Group, noting the price of a barrel has more than tripled over the last year. "The idea that somehow the president is responsible for this is simply not true. It's larger factors."

At best, the Biden administration has sent mixed signals to U.S. petroleum producers. At the start of his administration, he pledged to move the U.S. away from fossil fuels. He canceled the Keystone XL pipeline that would have moved up to 830,000 barrels of crude daily and temporarily banned new oil and gas leases on federal land. This week, in a sharp reversal, the administration auctioned 2,700 square miles of federal land off the Gulf Coast for drilling.

The president's two impulses are incompatible and are creating uncertainty for energy producers, Jones noted. "In the long term, he wants to transition the United States to renewables and away from fossil fuels. In the short and medium-term, he still needs a robust oil and natural gas industry to provide low-cost energy for the American public and American industry."

In his letter to the FTC, Biden argued there was an "unexplained large gap" between the price of crude oil, which is down 5% in the last month, and the price at the pump, which increased 3%.

Energy experts agreed that the price of crude oil has dropped slightly, though only after hitting a seven-year high of over $85 per barrel.

"Prices are starting to fall. But it takes some time to work through the system," explained Denton Cinquegrana, chief oil analyst with the Oil Price Information Service (OPIS) by IHSMarkit. Prices at the pump typically drop in the winter and they are expected to drop in the coming months. Prices are projected to remain around $3 per gallon.

While demand for oil has made a strong rebound from the initial shutdown in March 2020, U.S. production is still roughly 10% shy of 2019 levels, according to OPIS analysis. The U.S. lost several refineries in the last 18 months due to the COVID-19 demand crash, hurricanes in the Gulf Coast and shifts to other forms of energy production. The combined effect took about a half-million barrels offline, Cinquegrana noted. On top of lower output, the industry continues to experience a truck driver shortage that has translated into increased costs for transporting fuel.

"The system is really strained," he said.

Some producers are capable of increasing output but are wary to oversupply the market and face another price crash. There is also uncertainty about the Biden administration and a Democratic Congress imposing new rules or regulations on the industry. It is also possible that Biden's suspicions are correct and producers have coordinated to artificially inflate prices.

"I don't think it's wrong to check into any sort of collusion," Cinquegrana said of the FTC investigation. "But I think ... it's going to be tough to find something there that's pushing to these higher prices."