A short review of the oil market history takes us from Rockefeller’s Standard Oil to the shift from posted prices towards the spot market, which is dominated by the forces of demand and supply.
The world of oil started back in 1859 in Pennsylvania as a free world where the forces of demand and supply ruled. This kind of market didn’t last for long. John D. Rockefeller entered the business of oil and changed the rules of the game. Rockefeller went to church once a week, and the rest of his time was devoted to the destruction of his competitors. He was extremely successful. He soon ruled the world of oil in America via his company Standard Oil.
Clearly, the government didn’t want a single company to control about 90 percent of any market, so a legal battle followed and ended with the breakup of Standard Oil. Standard Oil gave birth to new companies: Exxon, Mobil, Chevron, Amoco and Conoco.
Texaco emerged as another big player, one of the few that were not an offspring of Standard Oil. Meanwhile, a British company called Shell distributed oil for Rothschild, who ruled the other oil region of the world, Russia. Royal Dutch found oil in Sumatra in 1890 and formed together with Shell what is today known as Royal Dutch Shell.
British Petroleum, known as BP, started back in 1908 as Anglo-Persian as it had discovered oil in Iran.
Those companies entered the oil rich countries like predators. While there was some regulation and government control in the US, the Middle East proved to be a fertile hunting area for Big Oil. They developed the market and they divided the markets. BP ruled Iran, the Americans had Saudi Arabia.
Some of them even made a treaty to ensure that everything went smoothly. They met in the Scottish castle of Achnacarry in order to control the downstream market. The dominating companies became later known as the “Seven Sisters”; some call them Big Oil.
The rule of the Sisters wasn’t so bad; they really cared about keeping the market supplied. If one company faced a problem, another was ready to help out. They controlled production, distribution, production reserves, the prices and the downstream markets.
The governments of oil producing countries were more like children receiving some money for their piggy bank and less like political forces controlling the country. Big Oil told them how much oil was produced and how much money the government received as Big Oil controlled the price of crude oil.
This worked for some time, but states, especially in the Middle East, simply didn’t kick out their colonial rulers just to be ruled economically by an accountant of BP instead of a commander of the British armed forces.
Continue reading
