Who Determines The Price of Oil? (Ralph Nader)

Question of the day: who and what is determining the price of oil and your gasoline and home heating bills?

Don't ask Uncle Sam, because George W. Bush and Dick Cheney are running a regime marinated in oil that does not issue reports which explain the real determinants of petroleum pricing beyond the conventional supply-demand curves.

{xtypo_quote_left} It's a big gambling hall," The Washington Post quotes Fadel Gheit, an oil analyst at Oppenheimer. "This time it's just speculation," Peter C. Fusaro, chairman of Global Change Associates, told the Post, adding, "There's a large bet out there that prices will continue to trend higher. But it's detached from fundamentals because there's no shortage of oil. {/xtypo_quote_left} 

First, let us create a historical framework to provide some background. In the good 'ole oil days, before the producer-countries' cartel in the Third World gained pricing power, there were seven giant oil companies called the 'seven sisters' led by Standard Oil (now Exxon) and Shell. As chronicled in Robert Engler's classic book, The Brotherhood of Oil, they were able to affect pricing through extra-market means. Economists called them a tight oligopoly.

OPEC later took their place at the table in the mid to late Seventies and set the price of crude oil at highly publicized meetings of the various member countries representatives from the Middle East, South America and Africa. Adjusting, 'seven sisters' concentrated their pricing and supply power downstream at the refining, pipeline and marketing levels.

Pricing power was never total but it was always complex, occurring in the interstices of an industry few outsiders understood, and fewer regulators could affect. Besides, natural gas was de-regulated between 1978 and 1993, after which its prices really took off.

 Today, a third party has moved to the table-the New York Mercantile Exchange, a similar operates in London and a new one in Dubai. There, boisterous traders buy and sell futures contracts on the delivery of oil. But as Ben Mezrich, the author of the new book Rigged said recently, the dollar amounts of these futures contracts are far far larger than the actual oil deliveries they represent as they turn over and over at the Mercantile Exchange.

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