Oil Scandal

The Next Big Oil Scandal Just Broke – And We Paid for It

News just broke that the scion of a venerable U.S. oil company colluded with OPEC to keep oil prices high.

You read that right. An American businessman worked with Saudi Arabia to increase the price of one of our most important commodities. We hate when this stuff happens. It’s a black eye to an already unpopular industry.

Several news outlets, including the Wall Street Journal and The Hill, reported the story. The Federal Trade Commission (FTC) accused John B. Hess, CEO of Hess Corporation with secretly communicating with the Organization of Petroleum Exporting Countries (OPEC).

Hess Corporation is a 100-year-old company, founded in Asbury Park, NJ. Leon Hess, the founder, was the son of Lithuanian immigrants to the U.S. It’s a true American success story.

This is a sad end note to its history.

Today, the Hess Corporation is in the process of merging with another oil giant, Chevron. The FTC approved the merger with the caveat that current CEO John Hess is not involved in Chevron going forward. It’s a $53 billion merger.

John Hess, son of founder Leon Hess, owns 28.8 million shares or 9.4% of the company. That means he will receive $5 billion from the deal.

We don’t feel sorry for him. The price of gas at the pump doesn’t matter a whit to him. He’ll take his billions and go do something else.

With so much on the line, why did he try to collude to keep oil prices high? The answer lies in the basic economics of petroleum.
Oil is a commodity. The price is cyclical, as you can see here:

In the last 25 years, the price ranged from a high over $140 per barrel to a low of single digits during the Covid Pandemic.

The leader of OPEC, Saudi Arabia, needs the price of oil to be higher than $100 per barrel. That’s because, according to the International Monetary Fund, Saudi Arabia’s fiscal breakeven is $96.20 for 2024.

That’s a dramatic 19% increase from 2023.

Oil revenues support Saudi Arabia’s government spending. Ironically, the cost of the country’s upcoming World Cup (2034) and Expo 2030 added to the increase.

It makes sense that they will do whatever they can to keep prices high. They will collude with anyone willing to work with them.

That’s one of the most important points to remember about oil prices. OPEC needs higher prices to support their governments’ programs. They are willing to cheat and collude to get them there. Unfortunately, sometimes the billionaire CEOs of U.S. oil companies will help them.

For the Good,
The Mangrove Investor Team

Numbers You Need to Know

40%

OPEC member countries produce about 40 percent of the world’s crude oil. Equally important to global prices, OPEC’s oil exports represent about 60 percent of the total petroleum traded internationally. (U.S. Energy Information Administration)

13

OPEC has 13 members. OPEC signed an agreement with 10 other oil-producing countries to create what is now known as OPEC+. (U.S. Energy Information Administration)

679 billion

OPEC achieved revenues from oil exports worth $679.75 billion in 2023, with oil revenues accounting for 46.50% of member nations’ total exports. (argaam)

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