Do the Oil Companies Control Oil?

Do the Oil Companies Control Oil?
The campaign for President is starting to heat up and one of the major campaign issues is the price of energy. In many instances, the major oil companies are being painted as the bad guys. Barack Obama wants to slap a "windfall profits" tax on them. Are they really the villains? Do the large oil companies control the flow of oil and thus the price of oil?

The answer is that the major oil companies do NOT control the flow of oil. Back in the 1950s, major oil companies like Exxon controlled well over 80% of the oil being pumped. That number has fallen steadily over the years to where currently the major oil companies control less than 15% of all the oil being pumped out of the ground globally.

The remainder(over 85%)of the oil is controlled by state-owned oil companies. These would include state-owned oil companies in the Middle East, Russia, China, India, Mexico, Brazil, Norway, and the list goes on. This trend has greatly accelerated over the past few years with the big oil companies thrown out of major projects in Venezuela, Russia, and other countries.

So what oil exporting country is the most important to the US and to the price of oil? Most people would assume that the answer would be the world's largest oil exporter, Saudi Arabia. Saudi Arabia is very important, but not the most important when it comes to the price of gasoline in the US.

This surprising result comes about from the differences in the grades of oil. Much of the oil produced by Saudi Arabia(and Iran too)is what is called heavy or 'sour' crude. This type of oil is rather hard to refine, because of its high sulfur content, into the type of fuel needed in the US to meet our environmental regulations.

What US refineries need is what is called light or 'sweet' crude which has a low sulfur content. The key country producing that type of oil is Nigeria. In fact, in 2007 Nigeria and neigboring Angola exported more crude oil to the US than Saudi Arabia did!

Nigeria, however, has an ongoing problem - a near civil war which has been going on for years and is getting worse. This conflict has lowered Nigeria's oil production from 2.5 million barrels per day down to only 1.5 million barrels per day, the lowest output in 25 years.

This lower amount of quality oil on the market forced refiners globally to pay a premium for high quality oil. They were forced to pay a premium 4 times higher than normal to secure supplies of high-quality oil to refine into fuel so Americans can conduct their daily business. This translated directly to the rise in prices at the pump. A side note- the lower quality Iranian and Saudi oils are being sold at a steep discount because they are of less value.

Perhaps the next President, whomever he is, should pay more attention to the very critical assets controlled by countries of the African continent.

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