MICHEL MARTIN, HOST:
There's been a pattern in the oil market lately. Prices soared in the early weeks of the war with Iran and have fallen several times when President Trump claimed a deal to end that war is close. Trump has been paying close attention to gas prices and on Monday blamed corporate greed for why things are still so expensive.
(SOUNDBITE OF ARCHIVED RECORDING)
PRESIDENT DONALD TRUMP: When you look at one company, where they made 12 times what they made the year before, they ought to give some of that back to the public. And they better cut the retail price - the consumer price.
MARTIN: Let's bring in Bob McNally. He was an energy adviser to former President George W. Bush. He's also founder and president of Rapidan Energy Group, which is an independent energy consulting firm. Good morning, Mr. McNally. Thanks for joining us.
BOB MCNALLY: Good morning, Michel. Thanks for having me.
MARTIN: So the American Petroleum Institute is the trade organization for the U.S. oil industry. It told NPR that the cost of producing oil has not changed that much since the beginning of the war. But prices are way higher, and oil companies are making huge profits. So does President Trump have a point here? Are these oil companies profit-taking and keeping prices higher than they could be?
MCNALLY: You know, oil companies are price-takers, not makers. And as you pointed out, profits are high because prices are high. And prices are high for one reason - the war with Iran and the Hormuz disruptions. So it's true that the profits are quite fat now. When you see things like COVID and prices collapse, like in 2015, the profits collapse as well. So it's a very cyclical business. But this is all about Hormuz and the Iran war, not any kind of nefarious action by oil companies.
MARTIN: So as we said, when the President talks about a peace deal or movement on reopening the Strait of Hormuz, prices fall. But I am curious about why that keeps happening, since none of these deals have come to fruition and the strait is still effectively closed.
MCNALLY: You know, Michel, the entrenched optimism that oil traders, especially crude oil traders, have exhibited during this whole crisis is something folks will study for many years - and human psychologists. I don't have a good explanation for you. I can tell you, in 2022, when Russia invaded Ukraine, traders thought the worst. We - they expected a much bigger disruption than actually took place.
Here I think it has to do with the unfamiliarity with a prolonged loss of Hormuz. That was literally unimaginable. So perhaps it's something that - when human beings are confronted with something they never imagined, sort of a worst-case scenario, they believe it's going to end soon. And so as you noted, they readily respond by selling oil when the president says comforting things. And so we just go up and down in a sort of spasmodic oscillation of prices here.
MARTIN: But you don't think the six months that this has gone on has offered enough data to possibly recalibrate that?
MCNALLY: Well, so there have been some - let's call it - positive surprises on the crude oil side, right? There's two things. There's crude oil that goes into the refinery, but you and I don't buy crude oil for our car. Then there's the - turning the crude oil into refined products. The crude oil has been helped by China. China went on a crash diet and just cut its imports in half. We also use the Strategic Petroleum Reserve.
But those buffers, if you will, are running out or reversing. On the refined product side, it's a different story - very tight, very high margins, which the president mentioned, and that's keeping the pump prices that you and I pay higher. So there have been some positive surprises. It could have been a lot worse. But those factors that helped contain things are sort of wearing off a little bit.
MARTIN: Yeah. Let me - quickly about this - let me ask you about the Strategic Petroleum Reserve, the SPR. The president authorized the release of millions of barrels of oil early in the conflict. How much is left, and does that have an impact on energy security?
MCNALLY: Yeah. So we have about a little over 300 million barrels, about 308 million barrels. That's down from a 700-million-barrel top, where I helped President Bush put it there 20 years ago. It's really unfortunate. We can't use all that 300 million barrels. The low is probably about 170 or so. It's really unfortunate that both parties and President Biden sort of depleted our SPR for nonemergency reasons. It's a...
MARTIN: OK.
MCNALLY: ...Mistake I think we're going to have to correct in the future.
MARTIN: That's Bob McNally. He's president of the Rapidan Energy Group. Mr. McNally, thank you.
MCNALLY: Thank you. Transcript provided by NPR, Copyright NPR.
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