by M Plaut

Created on: May 28, 2008

The posturing Congressman in this election year (2008) were sure that the high prices are caused by the large US oil companies. "You all are gouging the American public and it needs to stop," declared Representative Steve Cohen, Democrat of Tennessee.

The oil executives on the firing line protested that the true causes of the rise in the price of oil and its products are just the impersonal forces of the vast world market. "As repetitive and uninteresting as it may sound, the fundamental laws of supply and demand are at work," said John Hofmeister, the president of Shell Oil Company.

In truth the politicians were just pounding on the most convenient targets that they could find. The chief executives of the major US multinational oil companies have to come every time that the Congress people call. However the real source of world crude oil production - and pricing power - is no longer the huge American oil companies, but rather the national oil companies of the major oil producing countries around the world.

According to a recent article in the London Financial Times, the major international oil companies produce are dwarfs on the world stage. Though they controlled almost three quarters of total world oil production in the 1970s, the so-called Seven Sisters (who are now only five) now control barely 10 percent of current world production. In terms of reserves, the future production, the major oil companies control only three percent of the known oil in the ground.

WITH NUMBERS like these, what used to be called "Big Oil" is in now position to throw its weight around. They simply do not have the clout in any sense to have much effect on world oil prices.

So who does? The London Financial Times says the the new seven sisters are the national oil companies of the major countries with reserves: In order of prominence, they are Saudi Aramco, Russia's Gazprom, CNPC of China, NIOC of Iran, Venezuela's PDVSA, Brazil's Petrobras and Petronas of Malaysia. Together, these companies control about a third of both production and reserves. They are also very close to their countries' rulers for very obvious reasons.

It is pretty clear that market forces have a major role in setting the oil price. An investment banker who specializes in oil, Matt Simmons, has argued for years that world oil prices are far too cheap to guarantee future supply. He claims that the low prices have not been drawing the resources, both of men and of money, that are necessary to produce tomorrow's oil supplies. Even after the price rises of recent years, Simmons says that petroleum is cheap.

But maybe somebody is helping things along. Maybe somebody is pushing prices up higher and faster than the market would. But if so, the culprit is much more likely to be found among the national oil companies who control a third of world oil supplies, than the major oil companies who have less than a third of a third.

FOR CONGRESS however, it is not likely, to put it mildly, that any of the executives of the national companies, the true power brokers in today's international oil markets, will subject themselves to the tough, electioneering grilling of Congresspeople looking for headlines.

So Congress will continue to take potshots at the targets which cannot squirm out of their range, while not doing anything among the policy options that are within its range such as increasing conservation and developing a national policy on production. And the American consumer will continue to pay the price.

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