When Oil Prices Spike, the Money Flows to Oil Companies
When oil prices spike, where does the money go?
Oil prices jumped from $66 to $101 a barrel after the U.S. and Israel attacked Iran. Energy economists explain that the windfall goes mainly to oil companies, but who benefits depends on ownership and regulation: Saudi Arabia's government, private shareholders in the Permian Basin and the U.K., Norway's sovereign wealth fund, or Russian oligarchs. Consumers ultimately pay the price.
But ultimately, the bulk of the money heads in the direction of the source of the oil itself – the oil companies.
- PaulHoule
The story back in the 1970s was that the global banking system was not so developed so the Saudis invested their profits from oil in the US so the money never really left the US which made the transition from domestic to imported oil much less painful for the US than it was for some other countries. The UK had it's bacon saved by
- ggm
To the extent my superannuation fund (401k, ROTH, IRA, hard to know what people call this in other economies) is invested in oil, it goes to .. me.
Super funds in Australia, Canada, the US, are now a massive component of capital investment both in the public market and in private equity. Australia's GDP is 2.5T and the super funds are up to 4T or 5T. Thats $trillion. The super funds are bigger than the GDP of the economy they reside in!
Some funds are just venal machines in the for profit sector. Some are run by boards aligned to union sectors, I am in the tertiary education union backed fund in Australia and it's been in the top 5 performing funds for my entire working lifetime, and given me a comfortable retirement. Most of the injection of funds was from me: I paid between 9 and 12% and on occasion up to 15% of my income into this fund over a 35 year working lifetime. Its accrual is all down to my fund manager, and if they invested in oil and have secured a windfall, at the cost of the future climate risk, thats on me, albiet indirectly. 35 years at the 150+ year 6-7% return in the market, (some say this trend is even older) is several doublings over my working lifetime. Those doublings were driven in .. the market.
Me here, is 75% or more of Australia. It's not some amorphous unknown nasty corporate investor in a sharp suit, its ordinary people. Oh, the article even points out that they pay out on insurance and capital costs rebuilding the exploded ships and production fa […]
- kleiba2
Spoiler alert: "But ultimately, the bulk of the money heads in the direction of the source of the oil itself – the oil companies. [...] The money largely goes to company owners – meaning shareholders"
- krupan
The wording, "Where does the money go," strongly suggests a fix supply of money, which not true.
- phendrenad2
[delayed]
- rossjudson
Does this mean the industry is now able to clean up the underfunded environmental disasters they created in the Gulf of Mexico?
Oh, right.
- lobo_tuerto
Is like in the covid era, where did the money go when all the prices spiked?
I bet it's some kind of redistribution.
- kleiba2
Can anyone explain how to read that first graph? Like, there's a line for demand, say, but given the axes labels, it seems to say "for greater demand, the price goes down", so the exact opposite of what basic price theory predicts.
Same for the supply lines, just the other way around.
Also, the use of straight lines indicates a linear relationship. Is that really the case in practice?