Wednesday, August 19, 2015

The Petroleum Cartel




A 1952 U.S. staff report to the Federal Trade Commission titled, “The International Petroleum Cartel,” documented serious cartel like behavior in the global oil industry, yet all criminal and civil charges were ultimately dropped.[i] The report established that seven firms essentially dominated assets, reserves, production, and refining and noted that control was exercised directly and indirectly, through interlocking directorates, joint ownership of affiliates, intercompany crude purchase contracts, and marketing agreements. 
Over fifty years later, the Seven Sisters are reduced in number and their oil reserves constrained by the rise of state ownership. Yet, despite their eclipse, they remain hegemonic in western markets over much of the supply chain. For example, a 2004 report by California Attorney General Bill Lockyer on oil pricing concluded that seven oil companies controlled 98 percent of the State of California’s refining capacity.[ii] They also marketed 90 percent of their refined gas through their retail networks. These companies include Chevron/Texaco, Shell, ConocoPhillips, BP, Valero, Tesoro, Exxon Mobil.[iii] 
A 2015 review of the report published at All Gov California indicates no change in ownership.[iv] Chevron/Texaco, Shell, ConocoPhillips, and BP, and Exxon derive directly from the original Seven Sisters. According to Nasdaq, Valero and Tesoro are primarily institutionally owned by financial firms, including Vanguard Group, State Street, FMR, D. E. Shaw and Co., and Blackrock Institutional Trust Company (81.3 institutional ownership of Valero’s stock[v] and 88.83 percent of Tesoro’s[vi]). Vanguard, State Street, and FMR, are among the ten most connected transnational corporations.[vii] Blackrock’s majority institutional investors include FMR, State Street and Vanguard.[viii] Nasdaq doesn’t report D. E. Shaw and Co.’s institutional ownership, but the company’s homepage reports that “The D. E. Shaw group is a global investment and technology development firm with more than $36 billion in investment capital as of April 1, 2015, and offices in North America, Europe, and Asia.[ix]
The tightly coupled, oligopolistic relationship between finance and energy centralizes societal decision-making about energy in the hands of authorities whose most pressing fiduciary responsibility is profit. In particular, Deutsch Bank, JP Morgan, Goldman Sachs, and Morgan Stanley have benefited from their control of upstream carbon and uranium resources while simultaneously exerting control over choke points in supply chains, such as refining and trading activities. Wall Street banks leveraged their control of energy supply chains to exploit trading, according to a 2014 U.S. Senate investigation titled, “Wall Street Bank Involvement with Physical Commodities.”[x] Wall Street’s turn of the twenty-first century rush into energy and other commodities was enabled by deregulation of banking ownership laws and deregulation of commodity transactions, such as derivatives.[xi]


[i]           The International Petroleum Cartel, Staff Report to the Federal Trade Commission, released through Subcommittee on Monopoly of Select Committee on Small Business, U.S. Senate, 83d Cong., 2nd sess (Washington, DC, 1952). http://babel.hathitrust.org/cgi/pt?id=pur1.32754078106683;view=1up;seq=35.
[ii]           Bill Lockyer Attorney General of Callifornia, “Report on Gasoline Pricing in California,” (updated March 2004), http://oag.ca.gov/sites/all/files/agweb/pdfs/antitrust/gasstudy/gasoline.pdf, 2.
[iii]          Lockyer “Report on Gasoline,” 14.

[iv]          Ken Broder, “California Oligopoly Gasoline Price-Spiking: Same as It Ever Was,” All Gov. California (April 2, 2015) http://www.allgov.com/usa/ca/news/where-is-the-money-going/california-oligopoly-gasoline-price-spiking-same-as-it-ever-was-150402?news=856126.

[v]           “Valero Energy Corporation Institutional Ownership,” Nasdaq (July 20, 2015), http://www.nasdaq.com/symbol/vlo/institutional-holdings.

[vi]          Tesoro Corporation Ownership Summary. Nasdaq (Jul. 20, 2015), http://www.nasdaq.com/symbol/tso/ownership-summary

[vii]         Vitali Stefania, Jamies Glattfelder, Stefano Battiston, “Supporting Documentation” for “The Network of Global Corporate Control,” PLoS ONE 6(10)(2011): e25995. doi:10.1371/journal.pone.0025995, 17.

[viii]         BlackRock, Inc. Institutional Ownership. Nasdaq (July 20, 2015), http://www.nasdaq.com/symbol/blk/institutional-holdings.

[ix]          D. E. Shaw, “Who We Are,” http://www.deshaw.com/WhoWeAre.shtml
[x]               United States Senate PERMANENT SUBCOMMITTEE ON INVESTIGATIONS Committee on Homeland Security and Governmental Affairs, Carl Levin, Chairman and John McCain, Ranking Minority Member, “Wall Street Bank Involvement with Physical Commodities: Majority and Minority Staff Report, Permanent Subcommittee, 2014.

[xi]          Büyükşahin, Bahattin & Michel A. Robe, Michel A. Does “Paper Oil” Matter? Energy Markets’ Financialization and Equity-Commodity Co-Movements. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1855264.

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