Who Controls Oil Prices? Big Oil Companies,
Big Oil Governments, Republicans?
Sam T. Harper
October 2006
A good friend of mine recently told me that while filling up his car's gas tank, the station manager commented that prices sure have dropped a lot lately. My friend, always one to stir the pot, responded "Of course, there is an election coming up."
As a former employee (20+ years ago) of a major oil company (what is now BP America), I hear comments about how we are getting screwed by Big Oil as prices rise. My friend was able to get a similar criticism in as prices are falling.
So what or who is it that is "screwing us" with these oil prices? I don't have a clear answer as to why oil prices are now falling from record highs, but I think I can bring some rational thinking to this very emotional element of our daily economy.
Big Oil: After every price run up in the last twenty years many Democrats and a few Republicans immediately begin calling for an investigation of price fixing by Big Oil. It happened this year during the run up in the California and Tennessee Democrat dominated legislatures and in Washington, D.C. None of these "investigations" have ever found any price fixing.
If Big Oil has the market clout to fix/manipulate prices they do so from a remarkable position of weakness.
Using 2005 production numbers (the latest available), the world daily crude oil production (includes all liquids from production) was approximately 85,000,000 barrels.
Big Oil's (Exxon, Shell, British Petroleum, and Chevron; the 4 largest by far) average daily production was approximately 8,600,000 barrels.
Hmmm... Big Oil produces only about 10% of the world's daily production, yet can control the daily price. I doubt it. If they could than why can't Volkswagen, which produces approximately 10% of the world's annual automobile production, control the price we recently paid for our Honda Element?
Big Government: Now looking at the same world daily crude oil productions from above (approximately 85,000,000 barrels), let's breakdown how much of that comes from government owned oil companies.
Countries that have nationalized their oil production include Saudi Arabia, Iran, Mexico, China, Venezuela, United Arab Emirates, Kuwait, Nigeria, and Iraq.
Adding up the daily production numbers from these countries shows a total of approximately 35,000,000 barrels, or 41% of the total world daily production. Now that is enough clout to truly control prices.
But let's be realistic. All the above listed countries don't get along very well so most do not wish to be in a room together (Venezuela and Iran being an exception). So how could they encourage higher prices?
There is only one force greater than a business's desire to improve profits: a government's desire to increase spending. That overwhelming desire is enough to provide implicit collusion of these countries to support higher oil prices. Higher oil prices in these countries mean more money in the king's/dictator's treasury.
But, you say, this will also hurt their people. No, as best as I could research, each of these countries provides local oil products at well below world market rates. That is why their citizens are not in rebellion while we pay for $70 per barrel.
Republicans: Accusing the GOP of setting oil prices is more laughable than an Al Franken commentary on Air America. The GOP cannot even organize for Social Security reform, making tax cuts permanent, creating a unified campaign strategy, supporting their party's president, fighting the War of Terrorism, ... . How could they ever meet and "decide" oil prices?
So who IS responsible for oil prices skyrocketing and now falling? Well, the only possibility we have found so far is Big Government.
As a conservative, I would love to stop right here and let my conspiracy bound liberal friends try to refute the possibility.
But I am going to keep searching because I believe that there are more elements than just Big Government that control our prices at the pump.
