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The oil industry generates around 10% returns on capital employed through the cycle, Chevron’s chief executive Mike Wirth told Bloomberg Television, pushing back on the persistent accusations by the Biden Administration that oil companies are profiteering from the surge in prices after the Russian invasion of Ukraine.
“Through the cycle, it’s an industry that generates 10%-ish returns on capital employed, which is I think, by the standards of many other industries, a pretty modest return,” Wirth told ‘The David Rubenstein Show: Peer-to-Peer Conversations’.
The top executive at the U.S. supermajor also said that oil firms aren’t gouging consumers with gasoline prices, disagreeing with the Biden Administration and Democratic lawmakers who accused the industry of price gouging after the national average price of gasoline hit a record high in June.
The oil market sets the price of oil and gasoline, not producers, Wirth said, adding, “I disagree with that characterization,” when commenting on the accusations of price gouging.
If oil firms don’t invest in increasing production and refining capacity, “they’re going to pay a higher tax on their excess profits and face other restrictions,” President Biden said in October.
With the decline in U.S. gasoline prices in recent weeks, the rhetoric of blaming the oil industry has subsided at the expense of the Administration taking credit for the falling prices at the pump.
Chevron’s Wirth noted that a windfall tax on oil companies would not be beneficial for either lowering U.S. gasoline prices or encouraging more supply.
“It’s not likely to reduce prices; in fact, it could do quite the opposite,” the executive told Bloomberg Television.
“So normally, if you want less of something, you tend to put more taxes on it. If we want more energy production, we want more supply to bring prices down, putting taxes on energy production’s probably not a good idea.”
Chevron believes that it needs to have a balanced approach to energy, focusing on affordability and reliability, alongside protecting the environment, Wirth said.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com