Largest Oil Companies

World oil production was developed by large privately owned companies such Esso, Mobil, BP and Shell but these companies are no longer major producers of oil. In 2007 the 5 largest oil companies only produced 12% of the world’s oil (Hamilton, 2008, p. 21) these companies now concentrate on oil refining and distribution. Control of oil production is in the hands of state owned oil companies, so ultimately it is controlled by governments. This includes the Organisation of Petroleum Exporting Countries (OPEC) , Russia and the other oil producing states of the former Soviet Union. In 2010 these countries produce 58.3% of the world’s oil and have 86.3% of proven reserves (BP, 2011). State owned companies are able to take a long view and are more likely to seek to preserve their resources. As King Abdulla (2008) of Saudi Arabia observed “I keep no secret from you that when there were some new finds, I told them, ‘no, leave it in the ground, with grace from god, our children need it.”

This is especially the case because a rise in the price of oil will have a paradoxical effect on the incentives for these countries. Oil production is needed to provide exports to pay for imports, to provide income for the countries inhabitants and to finance government expenditure. But with the recent large oil price increases OPEC countries have very large surpluses of exports over imports, their economies and their populations’ incomes are booming, and their governments have large surplus of revenue over expenditure. The problem has become what to do with the oil revenue, several countries have established sovereign funds to invest the money overseas, but some countries have blocked investments by these funds. So there is little incentive to expand oil production in OPEC countries when prices rise, some estimates suggest output will fall (Ramcharran, 2002). In non-OPEC countries generally oil is less important and the effect of an oil price rise more marginal and there is some increase in output, but it is small. The overall own price elasticity of supply of oil is low, so increases in prices will not lead to a significant increase in output in the short term.

In the longer term