Profits in both 2021 and 2022 came after losses in 2020 related to the pandemic. When lockdowns, social restrictions and the trend towards remote working drastically changed people’s transportation habits, oil traders sometimes paid buyers to take their barrels.
Historically, times of tight oil supply and associated rising prices have led companies to ramp up drilling and supply the market. These sudden changes in supply also led to plummeting oil prices, as exemplified by the energy crises of the 1970s, later culminating in the 1980s oil glut and a sustained slump in oil demand that lasted almost a decade. At the same time, better fuel-efficient vehicles entered the market, and newly discovered oil fields meant that demand was not keeping pace with increases in production.
Oil companies have been careful not to recreate the boom-and-bust pattern, the lesson of 40 years ago, by staying fresh in corporate consciousness, and that means they have been slower to ramp up production even as gasoline prices have risen to new levels. While 2022 profits more than doubled for most companies, year-over-year production growth grew at a much slower pace.
Exxon reported a 2.8% increase in global production of crude oil and other liquids, or 65,000 barrels per day. Chevron’s year-end reports show global oil production was unchanged from last year, while BP said it hit its lowest production costs since 2006.
The Biden administration has released barrels from the nation’s strategic oil reserve throughout 2022 also to moderate demand, a continuation of a policy that was set in 2021 to curb inflation. Biden’s pressure to increase oil production appeared to run counter to the administration’s climate goals. Environmental groups say the output increases offer only short-term relief, but they keep Americans addicted to a commodity that too often fluctuates in price and is largely controlled by a few large corporations.
“More drilling in the US won’t help solve the problem or bring prices down. It will only increase our dependence on expensive fossil fuels, destroying our climate, harming our health and polluting communities,” John Noël, senior climate activist of Greenpeace USA, he said in a statement last fall.
After losses from the pandemic, oil companies have felt pressure from shareholders to diversify their energy portfolios. Even Exxon, historically resistant to the oil-and-gas transition, has invested in the space for hydrogen and carbon capture; however, record profits this year mean Big Oil has little incentive to increase its severely limited spending on clean energy. BP, which has struggled to get out of a significant debt load, is even backtracking on its carbon targets. After planning to cut emissions by 30-35% by 2030, BP now says it will ramp up oil and gas production in 2023. Soon after the announcement, the company’s share price hit a nearly 4-year high .