As the election heats up, some politicians are yet again attempting to revive the tired and debunked myth that American energy producers are artificially raising energy prices on consumers. Later this afternoon, Democrats on the House Natural Resources committee plan to host a Roundtable on “holding Big Oil accountable” for alleged price gouging.
While this claim has been exhaustibly disproven by economic and scientific experts, perhaps some in Washington need yet another reminder that such behavior is not only nonexistent, but also strictly barred under America’s free market system. Let’s dive in.
- American Oil Producers Can Not Artificially Increase Energy Prices
Domestic companies don’t wield the power to manipulate prices. America’s oil and gas industry is dominated by more than 9,000 independent oil and gas companies that produce 83 percent of America’s oil and 90 percent of America’s natural gas. Moreover, even America’s largest oil producer controls just three percent of the global market.
Thus, rather than controlling the price, or total supply, of oil, American companies of all sizes simply respond to price signals, which are often influenced by OPEC (more on that later). When prices increase, companies are incentivized to produce more, thus relieving supply gaps and sending the price back down. Ultimately, this leads to a healthy market equilibrium.
- Price Gouging Allegations Have Been Around For Decades, and Been Debunked For Decades
Expert agencies and economists have lambasted activists’ price gouging narrative for years. In fact, according to industry analyst Phil Verleger, there have been more than 100 investigations over the past thirty years, and every single one has flopped.
The Federal Trade Commission (FTC) has also reported on multiple occasions that there is no evidence to suggest that oil and gas companies have manipulated global prices. The Commission investigated allegations in May 2006 and September 2011, but found that worldwide crude prices, not domestic producers, are the overwhelming drive of what Americans pay at the pump.
Notably, in 2021 when global oil prices were on the rise, President Biden pressed the FTC to double down on its probe to identify illegal conduct. Once again, all the Commission found was a double northing burger with no cheese.
In fact, even the Federal Reserve Bank of Dallas has stated that “U.S. oil producers are in no position to control retail gasoline prices.” Similarly, former Federal Reserve Chairman Ben Bernake has said that the “most important cause [of high gas prices] is the global supply-and-demand balance.”
Such debunking has been particularly prominent in California, where politicians have pointed the finger at oil companies for high gas prices. But according to economists and academics in the field, it’s California’s policies own policies that triggered the Golden State to have the highest prices at the pump in the nation.
- OPEC+ Can, and Does, Manipulate Global Prices
Due to the fact that OPEC+ is a cartel that controls 40 percent of global oil supply and 60 percent of exports, it has the ability to manipulate prices and has been increasingly exercising its power to do so. In fact, in 2023, OPEC+ members decided to cut production by almost five million barrels per day in order to prop up oil prices, equating to approximately five percent of global demand.
This year, OPEC+ has continued to extend production cuts into 2025 with a goal of reducing output by 5.86 million barrels per day. In fact, OPEC+ producers have boasted about utilizing their market power to drive up the price of crude. When Saudi Arabia decided to embark on further cuts last year, Saudi Energy Minister Prince Abdulaziz showed no remorse for raising prices on working families:
“This is a Saudi lollipop… We wanted to ice the cake. We always want to add suspense. We don’t want people to try to predict what we do…This market needs stabilization.” (emphasis added)
In order to combat OPEC+’s hold on global markets and its affinity for raising the price of crude, American energy companies are actively working to fill in the gaps and drive down the cost of energy – not thanks to dog and pony investigations in Congress, but through more production in the oil and gas fields. In fact, last year, the U.S. produced more oil than any country ever in history.
Bottom line: It’s election season and for some politicians peddling the price gouging narrative, the oil and gas industry is the perfect bogeyman to try and explain away bad energy policies. But they can’t seem to get their facts straight: not only has the price gouging myth been thoroughly and repeatedly debunked, but many of these same politicians are also fighting wars to decrease American oil production. So, who’s really artificially jacking up prices at the pump?
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