Baltimore alleges in lawsuit that US shale producers fixed fuel prices

The city of Baltimore accused major US shale oil producers of conspiring to lower production and boost petroleum product prices in a proposed federal class action lawsuit.

The suit was filed Aug. 24 in the US District Court for the District of New Mexico, joining a series of lawsuits against the producers filed in the same court. An Aug. 1 judges panel consolidated the previous suits from business and consumer groups all alleging Hess, Permian Resources, Occidental Petroleum, Diamondback Energy, Chesapeake Energy and Pioneer Natural Resources conspired to artificially maintain high prices for gasoline and diesel and other oil products in violation of US antitrust law.

The Baltimore lawsuit is the first of the group filed by any municipality or state. It claims the companies colluded against their own economic self-interest and that the "conspiracy appears to have begun sometime around 2017 and continues to the present day."

"Higher ... prices are leading and have led to higher profits for US producers of shale oil and fatter financial returns for their Wall Street investors," the claim argues. "The Mayor and City Council of Baltimore is a victim of this conspiracy to limit oil production. The Plaintiff and others similarly situated to it paid more than they should have for the products crude oil is produced to make."

Baltimore will seek class action status and hopes to include claims for Maryland and other states that purchased products from one of the named companies, including what it called "indirect" purchases. The city is seeking damages of $5 million and an order from the court barring future price coordination.

None of the companies named in the suit responded to requests for comment from S&P Global Commodity Insights.

FTC origins

Many of the city's claims stem from a US Federal Trade Commission investigation into ExxonMobil's $64.5 billion acquisition of Pioneer Natural Resources earlier this year. The FTC allowed ExxonMobil to proceed with the purchase provided Pioneer founder and CEO Scott Sheffield was not appointed to ExxonMobil's board. The company disputed the findings but agreed to the condition in order to move the deal forward.

The FTC said it found Sheffield had, over a number of years, made public and private statements that US oil companies should maintain uniformity in their approach to capacity growth. The FTC also accused him of holding regular conversations with OPEC and OPEC+ officials. In 2020, as the coronavirus pandemic rocked crude demand, Sheffield allegedly lobbied the Railroad Commission of Texas to impose output restrictions on Permian Basin oil production.

"If Texas leads the way, maybe we can get OPEC to cut production," Sheffield said. "Maybe Saudi and Russia will follow. That was our plan -- I was using the tactics of OPEC+ to get a bigger OPEC+ done."

Sheffield has argued those comments were taken out of context and said the FTC's allegations ignored his role in boosting Permian Basin oil production during his time at Pioneer. In addition to Pioneer's production, ExxonMobil and Chevron Permian outputs rose every year from 2020 to 2023. In 2023, the US produced 12.9 million b/d of crude, exceeding any other nation for the sixth straight year.

ExxonMobil told Commodity Insights on May 2 that it did not know about Sheffield's actions and that they were "entirely inconsistent with how we do business." ExxonMobil noted its extensive cooperation with the FTC over the acquisition.

Baltimore's claims build on that narrative, stating that Sheffield was receptive to former OPEC Secretary General Mohammed Barkindo's outreach to US shale producers as early as 2017, and that Sheffield's public comments aligned with continued engagement with OPEC officials in the following years.

"By 2021, with the pandemic-triggered fall in oil demand ending, oil prices were rising to their highest level in more than two years," the lawsuit says, arguing that US producers collectively reduced production based on the understandings they had reached with OPEC. "The conspiracy began to take hold."

Democratic pressure

The suits filed in New Mexico federal court are not the only fallout from the FTC's investigation. Democrats in the US federal government have been aggressively touting the finding as proof of collusion in an industry they say requires stricter regulation.

In the Senate, Majority Leader Chuck Schumer and 23 fellow Democratic senators called for the US Justice Department to open a formal investigation into potential violations of the Sherman Act, the 1890 antiitrust law that prohibits monopolies. Democrats on the House Natural Resources Committee asked the US Department of the Interior to review whether oil and gas companies implicated in alleged price-fixing could lose their leases on public lands.

"Over the last two years, you and your colleagues have repeatedly expressed concern about high gas prices, trying to blame environmental protections and efforts to hold polluters accountable, even while the US has been the number one producer of oil and the number one producer and exporter of gas in the world, and industry profits have soared," the Democrats wrote. "The complaint released by the FTC provides evidence for a different explanation that is more consistent with that given by committee Democrats: Big Oil companies conspired to drive up their own profit at the expense of consumers by colluding with cartels consisting of countries that pose national security threats to the US."

Democrats trumpeted these efforts at last week's Democratic National Convention.

"When we hear of potential collusion or price-gouging, we'll hold oil and gas executives accountable," the party's 2024 platform said.