Joe Biden sent to Saudi Arabia, gave Mohammed bin Salman an enthusiastic fist bump, only to wind up with no new oil production and mutual accusations of lying about their meeting. MBS traveled to Paris to get a warm handshake from Emmanuel Macron, and it appears that France managed to get a pledge of … something.
It started out well enough:
And at least at the end, neither side accused each other of lying — so far, anyway. Instead, it sounds like Macron got the concessions that Biden was hoping to win on expanding oil production, although put ambiguously:
French leader Emmanuel Macron and Saudi Crown Prince Mohammed bin Salman agreed to work “to ease the effects” of the Ukraine war, Macron’s office said Friday, after talks in Paris that marked the full diplomatic rehabilitation of the Saudi leader.
Like US President Joe Biden who visited Riyadh earlier this month, Macron had been keen to secure extra oil production from the de facto Saudi leader who was a pariah in the West under recently.
A French statement made no reference to any agreement but said the two men had agreed to “intensify their cooperation to ease the effects (of the war) in Europe, the Middle East and the world”.
The only way in which the Saudis can directly “ease the effects” of the war in Ukraine is to increase oil production in the short term. The Saudis insisted that would be impossible when Biden came calling in Riyadh, even after Biden initially claimed they would pump more. Biden also insisted that he personally confronted MBS about the murder of Jamal Khashoggi, which the Saudis said didn’t happen. That led to a diplomatic tit-for-tat over which side was lying that likely undid any diplomatic value in the trip for Biden. And for that matter, any political value for Biden, too.
Meanwhile back home, where Biden could act to unlock a rapid expansion of American production, two US oil companies reported record profits for the second quarter. The New York Times took note, as well critics of the oil industry:
Exxon Mobil and Chevron, the two largest energy companies in the United States, said on Friday that profits jumped in the second quarter as they continued to reap the benefits of soaring oil and gas prices.
Exxon reported income of $17.9 billion for the three months through June, more than three times what it earned a year ago. Revenue at the energy giant jumped to $115.6 billion, from $67.7 billion a year ago. Chevron’s performance was similar, with profit more than tripling to $11.6 billion as sales rose to $65 billion, compared with $36 billion a year ago.
Coming after oil prices nearly doubled from a year ago, the bumper results were expected, but Exxon and Chevron still beat analysts’ predictions for profits in the quarter. On Thursday, Shell, the biggest oil company in Europe, also reported a record quarterly profit.
Why did earnings and profits jump? Earnings went up because prices shot through the roof — but so did costs. In 2021, ExxonMobil had a net profit margin of 6.9%. In the quarter that just ended, ExxonMobil had a net profit margin of 15.4% — a very healthy rise indeed, but still hardly exceptional in American industry. Their costs went up 48% between 2021Q2 and 2022Q2, too. That still leaves a big increase in profit margin, but what matters is what ExxonMobil did with it. Over 40% of that got distributed back to shareholders, though, including $3.7 billion in dividends, so the company didn’t sit on it.
Why didn’t they plow that money back into exploration and production, which would lower the profit rate but produce more domestic supply? Those activities take several years to pay off, even under the best conditions. Under the current administration, long-term investments don’t have any chance of paying off. The administration itself, from Biden on down, insists that they want to shut down fossil-fuel energy sources within the next decade, which makes nothing but the most short-term investments worthwhile.
In the meantime, however, Biden has to go hat in hand to the Saudis to pump more of the same fossil fuels that Biden supposedly opposes. It’s an idiotic energy policy, as even MBS pointed out at their meeting. If America needs more oil, we should be pumping our own and structuring the financial incentives for long-term investment in production and refining. Maybe in two years or so, we might actually return to a coherent and practical energy policy, but clearly we won’t while Biden’s in office. And the rest of us will pay through the nose for that incompetence.