Nearly half of China's major cities are sinking, researchers say
Nearly half of China's major cities are suffering 'moderate to severe' levels of subsidence, putting millions at risk of flooding especially as sea levels rise.
As drivers continue to reckon with record high gas prices, the one industry clearly capitalizing on the cost of a barrel of crude is the oil companies themselves.
Companies such as Cenovus, Esso-owned Imperial Oil, Canadian Natural Resources Ltd., Shell and BP have reported record profits in their first quarter reports to the tune of billions of dollars.
Oil giant Saudi Aramco, which is 98 per cent owned by the Saudi government, said its profits soared more than 80 per cent in the first three months of the year, allowing it to overtake Apple as the world's most valuable company.
The price of crude, in turn, has affected the price of gasoline, although there are a number of other factors also at play, namely issues at the refinery level, tight supply and demand, and the war in Ukraine.
But do oil companies themselves control the price of crude? The simple answer is no, at least not on an individual level.
"If they had the ability to affect prices in a way that would help their own bottom lines, then they would not have allowed the price to collapse in 2015 and '16, even through 2020," Trevor Tombe, a professor of economics at the University of Calgary, told CTVNews.ca in a phone interview on May 24.
"So they take prices from the market and that determines their revenues."
In order to affect the global price of crude, you would need to be a very large producer, Tombe said.
"Most oil producers are small relative to the total global market and so, individually, have very limited ability to affect prices. They really are price takers," he said.
Any individual company that decides to hold back production would only be forgoing the opportunity to sell a barrel of oil at that high price, Tombe added.
"But you do see some larger oil producers co-ordinate with each other and together, collectively, account for a large fraction of the world market and so can influence the price, and there I'm talking about OPEC, Saudi Arabia in particular."
OPEC, or the Organization of the Petroleum Exporting Countries, which includes Saudi Arabia, produces about 40 per cent of the world's crude oil and accounts for approximately 60 per cent of international exports, the U.S. Energy Information Administration reports.
Worldwide demand for oil plummeted during the COVID-19 pandemic, sending crude prices down into the negative at one point.
OPEC and its allies agreed to slash production to support prices and have kept production targets low even when demand returned.
OPEC also has said it will not increase production to compensate for lost Russian oil. OPEC and its allied countries, which together make up OPEC+, also includes non-member Russia.
By producing less than it otherwise would, OPEC can influence the price of crude.
Individual oil companies, in turn, take advantage of those prices, resulting in higher profits for themselves, hence the term "price takers."
Other jurisdictions can affect markets as well, including demand from large countries such as China. The United States has also significantly increased oil production over the last decade.
"But this is not collusive behaviour on the part of producers and, really, if we're talking about oil companies, and we're talking about Canadian oil companies in particular, they absolutely do not have the ability, if they wanted to, to affect global prices," Tombe said.
Ian Lee, an associate professor at the Sprott School of Business at Carleton University in Ottawa, called the notion that this is happening "preposterous," given the number of buyers and companies involved in the global market.
"For price fixing to occur, the company or the country must control almost the totality of the world's supply, because otherwise someone will undercut you. That's the nature of competition, it's just that simple," he told CTVNews.ca in a phone interview on May 23.
Figures from the International Energy Agency illustrate how tight supply and demand for oil are currently.
Even though OPEC accounts for a sizeable chunk of global supply, the majority of crude oil is produced by non-OPEC nations, Lee stressed.
It isn't to say that OPEC has no influence, and refineries are no doubt profiting, but it's not because they control the price of crude, he said.
They are simply the beneficiaries, Lee said. "It's like wining the lottery, and they've won the lottery."
As Heather Exner-Pirot pointed out to CTVNews.ca, the price of crude would never be low if producers had the ability to control it.
The Calgary-based senior fellow with the Macdonald-Laurier Institute said in a phone interview on March 24 that prior to the COVID-19 pandemic, the price of oil was relatively low as the U.S. went from being a net importer of oil to a net exporter because of the "shale revolution."
The pandemic then greatly reduced demand for oil and companies slashed their production budgets, Exner-Pirot said.
"Now, demand has come up but production hasn't, and part of it is oil companies are doing well right now," she said.
Investors want to see dividends now rather than put that money back into production. Even then, the ability to get that oil to market in Canada is limited, she said, with the country also facing supply chain constraints and labour shortages.
What is different this time, she says, is OPEC has limited spare capacity, on top of existing refinement challenges.
"The short answer is we're going to have an energy crisis. There's no way around it right now, except for a collapse in demand from another pandemic," Exner-Pirot said.
Werner Antweiler, director of the Sauder School of Business Prediction Markets at the University of British Columbia, told CTVNews.ca in an email on May 23 that while major oil producers are making substantial profits, the price increase is not their making.
"It's a market outcome when we have a supply shortage and demand is price-inelastic. Then prices need to go up substantially to balance global supply and demand," he said.
Everyone is at the mercy of international oil markets, Antweiler said, and commercial entities can simply pass on higher prices to their consumers.
"The problem is that demand is so price inelastic," he said. "Industries and transportation react very slowly to adjust their activities, and it takes a huge price increase to bring down demand sufficiently."
If anything, what recent events have shown is that consumers are still willing to pay $2 per litre of gas, but how long that lasts could change in the form of demand destruction.
Drivers may change their behaviour in order to reduce how much they pay for gas, whether it's carpooling or working remotely, to opting for a hybrid or electric vehicle later on.
However, the experts CTVNews.ca spoke to agree that people with low to modest incomes would feel the impacts much strongly.
The high prices, however, will incentivize producers to increase the amount that they supply, Tombe said. "And no doubt, many of them are doing that very thing right now."
Some have proposed a temporary stop to the collection of provincial gas taxes, as well as the federal carbon tax, to help consumers. Alberta has suspended its provincial gas tax, as one example.
Exner-Pirot says while good politically, it would actually encourage consumption and lead to the opposite of demand destruction.
"That works so far in rich countries that can afford it, but it will just drive the price up further," she said.
With files from CTV News, The Canadian Press, The Associated Press, Reuters and CNN
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