Summary of Key Points
With just two months left until the mid-term elections in November, Trump plans to meet with executives from more than a dozen refining companies, including Chevron and Marathon Oil, in an attempt to reverse his declining support rates due to high oil prices. He aims to discuss ways to lower gasoline prices and increase refining capacity. The current average price of gasoline in the United States is $4.08 per gallon, up from $3.19 in the same period last year, reaching the highest level for August on record. This increase is driven by global supply issues such as disruptions in shipping through the Strait of Hormuz and a ban on Russian refined oil exports. Although oil companies' profits surged in the second quarter (Chevron's net profit increased by 400%), they have not reduced prices, which has drawn criticism from Trump. The Trump administration has already employed various measures, such as exempting companies from the Jones Act, releasing Strategic Petroleum Reserves (SPR), and collaborating with Venezuela to develop oil fields, but these efforts have had limited success, and the policy tools are running out. The Republican Party's prospects in the mid-term elections are bleak, with a 89% chance that the Democratic Party will regain control of the House of Representatives.
Detailed Analysis
1. **Mid-Term Elections Approach: High Oil Prices Become a Political Minefield for Trump**
Trump is urgently trying to lower oil prices, as the mid-term elections are just two months away. The Republicans need to maintain their majority in Congress, but voters are very dissatisfied with the high cost of living, especially the price of gasoline. A Reuters-Ipsos poll shows that Trump's support rate has dropped to 33%, with only 31% of the public approving of his approach to the Iran conflict. High oil prices directly contradict his campaign promise to reduce living costs in 2024. A TD Cowen research report indicates that the Republicans have shifted their focus to promoting the affordability of essential goods, and this meeting with refining companies is an attempt to signal to voters that they are taking action to solve the problem, in order to avoid a mid-term election defeat.
2. **Global Energy Crisis Leads to Rising Gasoline Prices in the U.S.**
The reason gasoline is expensive in the U.S. is not a lack of domestic oil; rather, global supply has been disrupted:
- Strait of Hormuz Risks: This strategic passage is a vital route for global oil transportation, handling 20 million barrels per day before the conflict, but now nearly shut down, resulting in a daily shortage of 8 million barrels.
- Russian Ban: Ukraine's attacks on Russian refining facilities have led to a ban on Russian refined oil exports, further tightening global supply.
- Refining Companies' Profit Maximization: Refining companies sell oil to the markets with the highest profit margins (a concept known as "cracking spreads"), which means domestic oil is being exported, driving up prices.
Data from the American Automobile Association shows that the average gasoline price in August this year is the highest for that month in history, costing nearly $1 more per gallon than last year.
3. **Why Is Trump Angry Despite Oil Companies' Profits?**
Oil companies made substantial profits in the second quarter: Chevron's net profit increased by 400% to $12 billion, ExxonMobil's doubled to $14.5 billion, and the three major refiners (Marathon, Phillips 66, Valero) together earned $12.6 billion. However, they have not used these profits to lower prices and continue to profit from price differences. Trump criticized them in early August for profiting from high oil prices, and the meeting is an attempt to pressure them to either reduce prices or expand capacity, otherwise, voters will become even more dissatisfied.
4. **Trump's Oil Price Relief Measures: Limited Effect and Potential Negative Consequences**
Trump has already tried several approaches, but they have not addressed the root issues:
- Exemptions from the Jones Act: Previously, oil transportation between U.S. ports required the use of American ships, which were expensive and slow. Exemptions have allowed the use of foreign ships, temporarily increasing supply, but this is only a temporary solution.
- Release of Strategic Petroleum Reserves (SPR): Most of the 170 million barrels released from SPR have been used, and reserves have dropped to their lowest level since 1982, leaving little available.
- Venezuela Oil Field Cooperation: The U.S. is helping Venezuela develop 17 oil fields with potential reserves of 65 billion barrels, but SPR contains light, low-sulfur oil, while Venezuela produces heavy oil, making it difficult to replenish reserves quickly. Moreover, it will take several years for production to increase significantly.
Furthermore, U.S. refining plant operation rates are at 97.4%, the highest in eight years, indicating that capacity is nearly full, making it challenging to expand production.
5. **Few Remaining Options, and Some Measures Could Backfire**
Trump's policy options are running out:
- Export Bans: If gasoline exports are banned, refineries may switch to more profitable diesel production, further reducing gasoline supply and driving up prices.
- Sanctions on Iran: These are unlikely to be effective, as Iran is already under numerous sanctions, and the Strait of Hormuz is not completely closed. Additionally, Iran can afford to sustain a long-term shortage.
- Mid-Term Election Outcomes: Market projections by Polymarket suggest a 89% chance that the Democratic Party will regain control of the House of Representatives and a 51% chance of taking control of the Senate. While the ruling party usually loses mid-term elections, high oil prices increase the risk of a devastating defeat for the Republicans.
In summary, Trump wants to lower oil prices, but global supply issues remain unresolved, and his measures are ineffective. The mid-term elections could prove to be a major setback for him due to high oil prices.