Saturday, May 24, 2008

Foreign state control of oil reserves, rather than oil company behavior, may account for most of recent price run-up

A story by Patricia Hill in the May 24 Washington Times, p A1, presents an important view of the oil price crisis. The story is titled “State monopolies nudge out Big Oil: West’s expertise losing value,” link here. (Note that The Washington Times has a beta format for its website and may soon launch it. Very recently the "conservative" paper doubled its newsstand price for the print version from 25 to 50 cents, to make the price the same as the Post. Sunday Edition still just charges $1.00.)

The story points out that most of the world’s oil reserves are under the direct control of governments (often authoritarian and potentially or actually hostile to the West) or government-owned oil companies, like Aramco. Political instability in these countries feeds their economic interest: the implied threat of disruption keeps the price high, feeding authoritarian regimes.

ExxonMobil is a corporation, not a "country":

ExxonMobil may be the U.S. ‘s largest oil company and may report enormous profits, but it controls only a little more than 1% of the world’s known oil reserves.

ExxomMobil closed yesterday at $90.70, a drop but still high in its trading range.

Russell Gold has a brief but important story in the Weekend Wall Street Journal May 24, "For Exxon Holders, Profit Is Not Enough" about the upcoming shareholder meeting May 28 in Dallas, and the likelihood that some shareholders will propose measures on going green and emphasizing renewable energy, in "Oprah" manner. The XOM link announcement is here. The Corporate home page for the company has some recent position papers on environmental and citizenship issues.

A group named CoopAmerica is encouraging Exxon shareholders to pressure the board to use Exxon's profits for clean energy; the petition is here.

A story by Susan Mufson in the Washington Post today "Peeved at Prices? Don't Blame the Dealer; Awash in Profit, Exxon Fights for Pennies While Raising the Rent," in the Washington Post, Sunday, May 25, p A1, link here, doesn't help the company's image. Exxon is reported as raising rents on properties it leases to franchisees, and raising wholesale prices when it learns retail prices have gone up.

Investors who bought domestic oil stocks during the 1970s oil crisis (even after the 1973 Arab oil embargo) and held onto it have done extremely well, with perhaps a 20-fold increase in value. Some investment advisers or financial planners suggest that investors (perhaps even retirees who need income) invest in overseas operations in developing countries. But these might involve more risk or require more capital.

I recall a substitute teaching assignment three years ago where tenth grade students had to write in-class current events report, and the lead news story of the day was about the oil supplies in a vulnerable and autocratic Saudi Arabia. Some kids made the print copies from The Washington Post (including that article, which I pointed out as among the most important) into paper airplanes. This will be their world to run soon, and some of them have not a clue as to what is going on.

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