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LONDON — BP reported a second-quarter profit of $8.5 billion on Tuesday, its highest in 14 years, making it the latest oil giant to benefit from higher crude prices as Russia’s war in Ukraine disrupted global energy markets.
Just days earlier, the two biggest US oil companies – ExxonMobil and Chevron – reported that their profits tripled in the second quarter, while London-based Shell and France’s TotalEnergies also reported hits. Total second-quarter profits for Western oil companies are now over $55 billion, marking a stunning turnaround from the early months of the coronavirus pandemic.
The windfall comes as consumers around the world are feeling the pain of decades-high inflation and a cost-of-living crisis that is especially painful at the gas pump. The price of crude oil soared above $120 a barrel in March and again in June before falling back and remains up 34 percent from a year ago. The national average price of gasoline in the United States jumped in tandem to above $5 a gallon for the first time, AAA reported, although prices are already falling.
President Biden has warned the industry that he is considering all options to limit their profits if gas prices remain high. The president and other Democrats have consistently opposed oil industry profits at a time when drivers are struggling to cover the cost of fueling up.
While Biden’s tools are limited — he doesn’t have enough support from Congress to move his windfall tax plan forward — that could change if he declares a “climate emergency,” as the administration has said is possible. Energy analysts predict that if gas prices start to skyrocket again, Biden could use his presidential powers to impose more government controls on domestic oil and gas producers.
Oil executives rejected criticism from the Biden administration, saying the only way to correct the supply-demand imbalance in global oil markets is to pump more oil.
“I want to be clear that Chevron shares your concern about the higher prices Americans are experiencing,” Chevron CEO Mike Wirth told Biden in an open letter. “And I assure you that Chevron is doing its part to help address these challenges by increasing capital spending to $18 billion in 2022, more than 50% more than last year.”
Analysts also note that the oil market is intensely cyclical. The industry suffered during the financial crisis of 2008-2009, again between 2014 and 2016 and most recently in the first two years of the coronavirus pandemic, says Pavel Molchanov of investment bank Raymond James.
“The industry is currently enjoying record levels of profitability, but two years ago the COVID-related commodity crash was an epic failure,” Molchanov said in an email.
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BP’s second-quarter results, up from $6.2 billion in the first quarter, were driven by strong refining margins, “the continued exceptional performance of the oil business” and higher fuel prices, the company said in a statement. Rising global demand and the war in Ukraine were key to the price hike, directly boosting the company’s profits.
“Today’s results show that bp continues to perform as it transforms itself,” Chief Executive Bernard Looney said in a statement. “We do this by providing the oil and gas the world needs today – while at the same time investing to accelerate the energy transition.”
As a result of the strong earnings, the company said it would increase its dividend payout by 10 percent, to 6.006 cents per common share, more than previously expected. “This increase reflects the underlying performance and cash generation of the business,” the company said.
BP said it expected oil and gas prices to remain high in the third quarter “due to continued Russian supply disruptions” and “reduced levels of spare capacity”. The geopolitical outlook has also led to a lack of European gas supplies, which are “heavily dependent on flows from Russian pipelines”, which are expected to keep prices “high”.
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Shell announced even bigger share buybacks totaling $6 billion, while Exxon said it distributed $7.6 billion to shareholders, including dividends.
Patrick De Haan, head of oil analysis at GasBuddy, said the major oil companies do appear to be investing in increasing their supply. But in the short term, their focus appears to be on shareholder value, he said.
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President Biden accused US oil giants of taking advantage of difficult circumstances. Speaking at the Port of Los Angeles in June, he said, “Exxon has made more money than God this year.” The company hit back, blasting his administration for trying to “criticize and sometimes denigrate our industry,” while the oil companies deny it. accusations that their policies keep prices artificially high.
In May, the British government announced a 25 percent tax on the profits of oil and gas firms, which will be used to help low-income households struggling with a sharp jump in the cost of living. US lawmakers have considered a similar tax, but it is unlikely to pass in the evenly divided Senate.
British MP and opposition Chancellor of the Exchequer Rachel Reeves criticized BP’s earnings, tweeting: “People are worried about energy prices rising again in the autumn, but once again we see eye-watering profits for oil and gas producers.”
Left-wing politicians and advocacy groups in both the US and the UK have called for additional taxes on oil company windfalls.
Greenpeace UK tweeted “there is something particularly obscene and cruel about gas companies like Shell and BP making record profits while consumers struggle to keep warm this winter”.
Rep. Rosa De Lauro (D-Conn.) tweeted “corporate monopolies are exceeding their market power, hurting families at the pump and driving up inflation,” later adding, “Americans don’t deserve to have their prices raised at the pump.”
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