Oil speculators, Russians and the death of free-market oil
I asked possibly the most stupid question I have ever asked in my life this morning.
In a room containing the top bosses from ExxonMobil, Rosneft, BP and the Russian deputy PM, I asked if they felt high oil prices were a problem.
Clearly they are a problem, alongside other surging commodity prices for many advanced economies. But the assembled oil barons are the beneficiaries of the strength of prices.
Oleg Sechin, Russian Deputy Prime Minister (quite a bit more powerful in Russia than Nick Clegg is back home), at first laughed and answered: “A very good question”.
Rex Tillerson, CEO of ExxonMobil, gave an unexpectedly lengthy answer. He pointed out that OPEC has surplus production capacity, and could bring down prices, yet demand was rising as the developing east surges again. He seemed to suggest that there were other factors at work. That would tie in with a growing willingness of oil bosses to blame speculators. I didn’t get the chance to follow up the question.
His conclusion: that oil prices will continue to trade where they are now for some time.
Mr Sechin, too, then answered the question, recognising that it was in producers’ and consumers’ interests to have stable prices. But he pointed out that end-user fuel prices were driven by taxes and shipping costs.
This was a quite remarkable window into the new world of state run oil. At the front was the mighty Exxon gleefully signing a deal with the Russian Government-run Rosneft for deepwater exploration in the Black Sea.
At the back, Carl-Henric Svanberg – the BP chairman – watched on. His high profile share swap with Rosneft – making the Russian Government BP’s biggest shareholder – seemed to this non-expert to have been struck on rather less favourable terms than had been secured by the Americans. No Exxon stake has been given up. The oil experts say it shows the hand played by the Russians with a Gulf spill-weakened BP.
The bigger picture here has been known for a long time. It’s the end of the buccaneering free market oil majors as we know them, and the time of giant statist entities. I never thought I’d see this so visibly in a five-metre squared room.