<p>Like many international markets, the crude oil market is a mix of private and public participants.</p>

<p>From most perspectives, it really doesn't matter whether oil production is state-run or run by private leases. Both, ultimately, are combinations of public and private forces - just different blends. Both are trying to optimise the outcomes for their owners. They're all suppliers that respond to demand.</p>

<p>They're all largely price takers; the larger they are, the more they contribute to being a price maker - same as any other market. Nominally, Saudi Arabia as the main force in OPEC carries the market force of the entire cartel: but as Saudi is by far the largest producer in OPEC, the supply levels of the other cartel members don't carry anywhere near as much weight, and there is some evidence that they haven't always implemented fully proportional cuts when Saudi has called for cartel-wide production cuts.</p>

<p>So Saudi Aramco is just another market player, albeit the single largest one, and has some additional leverage via other OPEC members.</p>

<p>Many myths surround Saudi's oil policy; many widely-held assumptions are wrong. The most accurate thing I've heard said of it, credited to various folks is: the people who talk about Saudi intentions, know nothing; and the people who do know the intentions, say nothing.</p>

<hr>

<p><sub>Footnoe: the products are not completely fungible: different crudes have different chemical compositions (sweet crude has low sulphur content, sour crude has high)</sub></p>

CC BY-SA 3.0
2015-12-24T09:45:24.200Z
2015-12-24T09:45:24.200Z
410 gone
<p>I'm not any kind of expert in this area, so please be gentle. </p>

<p>It seems that we speak of oil (and other natural resources) as though control of output and revenue from extraction adheres to the national government (as in "Saudi" oil), but is this true of countries like the US as well? Is it accurate to speak of "US" oil in the same way we speak of "Saudi" oil, given that from what I gather the US does not directly control production and does not directly sell product, while the Saudi government controls oil extraction as a state-owned monopoly?</p>

<p>What if any are the implications of the apparent differences here?</p>

CC BY-SA 3.0
2015-12-22T22:25:34.173Z
Are you talking about the industry or the commodity?
Giskard
CC BY-SA 3.0
2015-12-22T23:12:15.483Z
@denesp Not the commodity, which is essentially fungible. I'm asking about the implications of what seem to be two different "systems" for ownership and production of resources, one private and one governmental.
Jim Mack
CC BY-SA 3.0
2015-12-23T04:10:33.803Z
Don't dismiss the differences between WTI and Dubai crude oils so quickly. WTI crude (from the U.S.) has lower sulfur content and a higher gasoline fraction than Dubai crude.
dismalscience
CC BY-SA 3.0
2015-12-23T04:20:03.067Z
Also, when you say that "the US doesn't directly control production," what do you mean? Do you mean the US government specifically, or entities owned by US citizens, or something else?
dismalscience
CC BY-SA 3.0
2015-12-23T11:14:28.807Z
@dismalscience The difference in grades isn't the point, which is why I say they're essentially fungible. Maybe we can consider "oil" a commodity, or any other natural resource, and focus on the differences in how countries control production and who profits from sales.
Jim Mack
CC BY-SA 3.0
2015-12-23T11:24:06.767Z
@EnergyNumbers I may (almost certainly do) have an imperfect understanding of how this all works, but I gather that in the Saudi model the govt owns the oil, govt entities extract it, and the govt directly sells it. It can and does set production levels to help drive price. In the US model the oil is owned by private companies who pay an extraction fee. They, not the govt, set production targets and benefit from the sales (minus some other taxes). If those models reflect reality, I'm asking whether we can realistically speak of "Saudi" or "US" oil in the same market terms.
Jim Mack
CC BY-SA 3.0
2015-12-23T14:30:24.417Z
@EnergyNumbers  What difference would it make? Well, I'd understand it better. Think of this not as much about oil as about natural resources and who owns them. I'm not narrowly focused on the world oil market but on how countries extract value, who profits, who controls. Oil is just a convenient example of a resource, and Saudi vs US is an example of two approaches to ownership. There's no analog to Aramco in the US model, right? So what does that mean for the two nations?
Jim Mack
CC BY-SA 3.0
2015-12-23T17:39:34.987Z
I've tried to clarify the question a little bit with an edit; I'm of the opinion that the edited version is sufficiently clear to be answerable and that the answer will follow a form that looks a lot like @EnergyNumbers's comment 4 hours ago.
dismalscience
<markets><energy-economics>
What are the implication of state-run oil production vs. private production from leases?
Jim Mack
# What are the implication of state-run oil production vs. private production from leases?

(Asked by: username_0 on 2015-12-22)

I'm not any kind of expert in this area, so please be gentle.

It seems that we speak of oil (and other natural resources) as though control of output and revenue from extraction adheres to the national government (as in "Saudi" oil), but is this true of countries like the US as well? Is it accurate to speak of "US" oil in the same way we speak of "Saudi" oil, given that from what I gather the US does not directly control production and does not directly sell product, while the Saudi government controls oil extraction as a state-owned monopoly?

What if any are the implications of the apparent differences here?

**Tags:** markets, energy-economics

> **Comments:**
> **username_1**: Are you talking about the industry or the commodity?  
> **username_0**: @denesp Not the commodity, which is essentially fungible. I'm asking about the implications of what seem to be two different "systems" for ownership and production of resources, one private and one governmental.  
> **username_2**: Don't dismiss the differences between WTI and Dubai crude oils so quickly. WTI crude (from the U.S.) has lower sulfur content and a higher gasoline fraction than Dubai crude.  
> **username_2**: Also, when you say that "the US doesn't directly control production," what do you mean? Do you mean the US government specifically, or entities owned by US citizens, or something else?  
> **username_0**: @username_2 The difference in grades isn't the point, which is why I say they're essentially fungible. Maybe we can consider "oil" a commodity, or any other natural resource, and focus on the differences in how countries control production and who profits from sales.  
> **username_0**: @EnergyNumbers I may (almost certainly do) have an imperfect understanding of how this all works, but I gather that in the Saudi model the govt owns the oil, govt entities extract it, and the govt directly sells it. It can and does set production levels to help drive price. In the US model the oil is owned by private companies who pay an extraction fee. They, not the govt, set production targets and benefit from the sales (minus some other taxes). If those models reflect reality, I'm asking whether we can realistically speak of "Saudi" or "US" oil in the same market terms.  
> **username_0**: @EnergyNumbers  What difference would it make? Well, I'd understand it better. Think of this not as much about oil as about natural resources and who owns them. I'm not narrowly focused on the world oil market but on how countries extract value, who profits, who controls. Oil is just a convenient example of a resource, and Saudi vs US is an example of two approaches to ownership. There's no analog to Aramco in the US model, right? So what does that mean for the two nations?  
> **username_2**: I've tried to clarify the question a little bit with an edit; I'm of the opinion that the edited version is sufficiently clear to be answerable and that the answer will follow a form that looks a lot like @EnergyNumbers's comment 4 hours ago.  

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## 1 answers

### Answer by username_3 on 2015-12-24. Score: 2

Like many international markets, the crude oil market is a mix of private and public participants.

From most perspectives, it really doesn't matter whether oil production is state-run or run by private leases. Both, ultimately, are combinations of public and private forces - just different blends. Both are trying to optimise the outcomes for their owners. They're all suppliers that respond to demand.

They're all largely price takers; the larger they are, the more they contribute to being a price maker - same as any other market. Nominally, Saudi Arabia as the main force in OPEC carries the market force of the entire cartel: but as Saudi is by far the largest producer in OPEC, the supply levels of the other cartel members don't carry anywhere near as much weight, and there is some evidence that they haven't always implemented fully proportional cuts when Saudi has called for cartel-wide production cuts.

So Saudi Aramco is just another market player, albeit the single largest one, and has some additional leverage via other OPEC members.

Many myths surround Saudi's oil policy; many widely-held assumptions are wrong. The most accurate thing I've heard said of it, credited to various folks is: the people who talk about Saudi intentions, know nothing; and the people who do know the intentions, say nothing.

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Footnoe: the products are not completely fungible: different crudes have different chemical compositions (sweet crude has low sulphur content, sour crude has high)


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