Oil producer stocks and U.S. crude oil futures jumped Tuesday after President Joe Biden on Monday called for oil companies to pay higher taxes to lower fuel costs for consumers. Exxon Mobil (XOM) stock and Chevron (CVX) shares advanced in trading Tuesday.
Biden has repeatedly targeted major oil companies in recent months, accusing them of enjoying record profits by restraining production, holding oil supplies tight and prices high. To attempt to combat rising prices with midterm elections imminent, the president has been releasing oil from the U.S. Strategic Petroleum Reserve.
Meanwhile, U.S. crude prices advanced 2% Tuesday to $88.37 per barrel — still well below an early October high above $93. Oil futures traded 0.2% lower early Wednesday, holding above $88.
Prices rose nearly 9% in October, the first monthly advance since May. On Tuesday, a weaker dollar overcame concerns over possible new Covid-19 restrictions in China, sending oil higher. Entering November, the 2 million barrel per day production cut from the Organization of the Petroleum Exporting Countries and its key allies including Russia, known as OPEC+, is officially in effect.
The European Union’s sanctions on Russia are also set to tighten in December, placing fresh prohibitions on Russian oil.
Against this backdrop, Biden on Monday called on Congress to levy a tax on energy companies if they don’t use booming profits to bring down energy costs for consumers. The Wall Street Journal reported Monday Biden has been thinking about endorsing a tax on oil companies for months.
“Their profits are a windfall of war,” Biden said during his White House speech. “At a time of war, any company receiving historic windfall profits like this has a responsibility to act beyond the narrow self-interest of its executives and shareholders.”
Oil Producer Stocks: Taxing Soaring Profits
Biden’s comments come after oil producer stocks Exxon Mobil and Chevron reported combined net income of more than $30 billion in the third quarter. The Irving, Texas-based Exxon Mobil reported the strongest-ever quarterly profit in its 152-year history. It was Chevron’s second-best financial result, trailing only its Q2 performance.
“There has been discussion in the U.S. about our industry returning some of our profits directly to the American people,” Exxon CEO Darren Woods said last week in prepared remarks ahead of the earnings call.
“That’s exactly what we’re doing in the form of our quarterly dividend,” Woods said.
Chevron CEO Mike Wirth also signaled last week that if energy companies are taxed, they may produce less oil.
“Typically, if you want less of something, you tax it,” Wirth told Bloomberg TV last week. “If you want more of something, you tend not to tax it.”
Exxon Mobil stock climbed 1% to 111.91 Tuesday during market trading. Chevron shares increased 0.7%. Since hitting a recent low of 140.46 on Sept. 27, Chevron shares have advanced 30%. Chevron is in a buy zone above a 182.50 entry in a 20-week consolidation. Exxon is extended after an October breakout.
Warren Buffett-backed Occidental Petroleum (OXY) added 1.7%. Occidental is in a buy range after clearing a handle buy point at 72.14.
Oil producer stocks Shell (SHEL), based in Netherlands, increased 0.4% while London-based BP (BP) was up 0.4% before closing down 0.2%. On Monday, BP reported its second-highest quarterly profit. Earnings were boosted by $3 billion it made in gas trading throughout the quarter. BP also announced additional $2.5 billion of share buybacks.
On Tuesday, Saudi Aramco, Saudi Arabia’s national oil company, posted a 39% jump in quarterly profits.
OPEC Raises Oil Demand Forecast
On Monday, OPEC raised its forecasts for world oil demand. The oil cartel’s 2022 World Oil Outlook report says demand will continue to grow in the medium- and long-term, increasing 23% by 2045.
OPEC projects globally there should be an on-average annual increase of 2.7 million barrels of oil equivalent a day until 2045. The overall investment tally for the oil sector is $12.1 trillion through 2045, according to the report.
“Chronic underinvestment into the global oil industry in recent years, due to industry downturns, the COVID-19 pandemic, as well as policies centered on ending financing in fossil fuel projects, is a major cause of concern,” the report says.
