My columns tend to generate a lot of “passionate” responses from viewers. I try to correct misconceptions, as well as false statements and beliefs about the energy industry. But, in doing so I hear from the very people who hold and promote those beliefs. For example, whenever I explain the factors behind the rise in oil and gasoline prices, I get three different kinds of feedback. The first is simply appreciative of the explanation. The second is from angry Republicans, who are upset that I didn’t put most of the blame on President Biden and the Democrats. The third is from angry Democrats, who are mad that I am not putting the blame at the feet of oil companies.
I provide that preface because today’s column is the type that brings out the angry people. It’s going to be backed up with facts. Some are not going to appreciate the facts, but I think it’s important that people have accurate information about the energy industry.
Last month, Representative Jim Jordan tweeted:
“If Biden’s elected, he will wipe out your energy industry.” -President Trump, 2020
People paying $5, $6, and $7 per gallon agree!— Rep. Jim Jordan (@Jim_Jordan) June 15, 2022
This is a bizarre tweet, because who does Jordan think people are paying that money to?
First, we can agree that people are paying far more for gasoline under President Biden. We could discuss the reasons, but it is a fact that prices are much higher. In turn, inflation is soaring.
We can discuss President Biden’s energy policies. I have been critical of many of them. I was critical of the shutdown of the Keystone XL pipeline project. I have been critical of the general hostility to the U.S. oil and gas industry, especially in light of the fact that the administration is now groveling to Saudi Arabia. How about improving relations with U.S. oil producers? Instead of demonizing them and blaming them for high oil prices, how about having a civil dialogue and gaining a better understanding of the industry.
So, I agree fully that Biden hasn’t been a pro-oil president.
Nevertheless, contrary to the misconception that Jim Jordan tweeted, the U.S. oil industry has thrived under President Biden. The share prices of energy companies have exploded since his inauguration, because their profits have surged.
To be clear, I am not arguing that this is because of Biden. It’s not. But to suggest that Biden is wiping out the energy industry is nonsensical. Let’s look at some numbers.
There is an index that is commonly used as a stock market benchmark for oil and gas producers. It’s called the SPDR S&P Oil & Gas Exploration & Production ETF. The stock symbol is XOP. It currently holds about 60 oil and gas producers and refiners, from giants like ExxonMobil and Chevron to very small producers.
I am going to provide some numbers that you can check at Yahoo Finance. Enter the stock symbol, select historical data, and look at the share price over time. Use “Adjusted Closing Prices”, because that corrects the share price for dividends and stock splits, which gives a more accurate view of performance over time than just share price.
President Trump was inaugurated on Friday, January 20, 2017. The XOP closed that day at $151.70.
Although oil production continued to expand under President Trump, the oil producers themselves didn’t fare as well because of poor oil prices. On January 19, 2021 — President Trump’s last full day as president — the XOP closed at $69.02.
That means that the XOP — a good benchmark of the health of the oil and gas industry — declined by 54.5% while President Trump was in office.
Some will claim that this was because of the Covid-19 pandemic. Actually, at the beginning of 2020 — before the first case of Covid in the U.S. — the XOP was at $90.00. So it was already down by 40.6% prior to the pandemic. Even if you look all the way back to the previous summer, the XOP was trading at around $105-$110, still well below the value when Trump took office.
President Biden was inaugurated on Wednesday, January 20, 2021. The closing price of the XOP on President Biden’s first day in office was $68.64. As I write this after the close on June 16, 2022 — even after a huge sell-off — the XOP closed at $139.68. That is a gain of 103% in the XOP in the ~1.5 years that President Biden has been in office. This implies that the market value of the U.S. oil industry has approximately doubled under Biden, following a sharp decline under Trump.
You can repeat this exercise for just about any oil and gas company, and you are going to find similar results for most of them: A large decline under President Trump, and a large gain under President Biden.
So, say what you want about President Biden’s hostility to oil and gas. I will probably agree with you. But imply that the industry is doing poorly under Biden, and that is a complete denial of reality. Many companies — even huge companies like Chevron — have seen their values soar since Biden has been in office.
Some of the conservatives that get this far will be angry, wondering “Why are you defending Biden?” I’m not. I am correcting a misconception. Biden is not the reason their share prices soared. They soared because oil prices soared. (Of course, if you blame him for oil prices soaring, I suppose you would have to credit him for the huge expansion in the valuation of the oil industry).
There is another counter-intuitive example from history that is worth mentioning.
President George W. Bush was widely viewed as an oilman, with an oilman for a vice president in Dick Cheney. Yet, U.S. oil production declined while they were in office. Then President Obama — who, like Biden was generally hostile to oil and gas — came along and oversaw the largest oil production expansion in U.S. history.
How can this be? President Obama just happened to be in office when fracking began to pay dividends. He reaped the benefit of developments that had been taking place for years. It’s just another example of one president being impacted by events from the previous administration, and getting the credit (or sometimes the blame).
That’s also the case here with President Biden. The initial surge of oil prices were a result of the crash of oil supplies in May 2020, and then the subsequent recovery of demand over the next two years. The production crash took place under Trump, as did the early recovery.
But the demand increase kept going into Biden’s term, while supplies struggled to catch up. That drove oil prices — and the share prices of oil companies — much higher. Biden just happened to be president when it happened.
The point here is correlation does not imply causation. But let’s make sure we understand the facts.
By Robert Rapier
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