This chart also demonstrates a point I often make to people who think oil companies have much control over the price of oil. The IOCs on the list such as BP, ExxonMobil and Chevron control a very small percentage of the world’s oil supply. None of them could make a substantial enough cut in their crude oil production to have a significant effect on the global price of crude oil. For instance, if ExxonMobil tried to influence crude oil prices by cutting its output in half that would only amount to a bit more than 1% of the world’s oil production. Oil prices might respond a bit, but not nearly enough to compensate for ExxonMobil’s lost production.

Saudi Aramco is a different story altogether. Most people are unaware of the power Saudi Aramco holds over the global economy, but it’s the one oil company in the world that could unilaterally drive oil prices back above $100/bbl overnight. There is enough spare capacity in the system to make up for the loss of half of ExxonMobil’s production, but take half of Saudi Aramco’s production offline and oil prices would skyrocket.

Most of the world became aware during the oil embargo in 1973 that OPEC (Organization of Petroleum Exporting Countries) had the power to double or quadruple oil prices over a short period of time. In fact, with a third of the world’s oil production it still holds this power, but Saudi Arabia is the only country with the power to do so unilaterally.

That’s also why oil markets have been quickly spooked by events in neighboring Yemen. Oil prices initially spiked 5% last week on news that Saudi Arabia had launched airstrikes in Yemen. Many asked why violence in such a minor oil producer as Yemen should have had such an immediate impact on the price of oil. It’s because Yemen’s neighbor to the north is the most important oil producer in the world .

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Portfolio Update

Sunoco Lays a Golden Egg

In the most recent Energy Strategist, we discussed the risk to Energy Transfer Equity (NYSE: ETE) and, to a lesser extent, Energy Transfer Partners (NYSE: ETP) from low liquefied natural gas prices and their potential to derail the big Lake Charles LNG export project planned by Energy Transfer.

Even with Lake Charles in limbo, ETP has done well of late, producing over the last year 27% more cash than needed for a distribution still yielding 7.1%. That coverage will only improve when ETP consummates its intramural merger with Regency Energy Partners (NYSE: RGP) on April 28. It also improved last week when ETP dropped down a 32% stake in its remaining fuel retail business to the affiliated MLP Sunoco (NYSE: SUN) for $775 million in cash and $41 million in Sunoco units.

As with most dropdowns by an MLP general partner, this one’s going to pay ETP three times: in the cash payment for the acquisition, the incentive distribution rights on equity Sunoco will issue to finance its purchase, and yet again with more incentive distribution rights from any growth generated by the transferred assets.

It’s very rare for a general partner collecting golden eggs like these to yield more than 7%. But then again ETP shares its windfalls nearly 50/50 with ETE. Despite Lake Charles concerns, we like this broadly diversified MLP family’s prospects and leadership. ETP remains the #2 Best Buy below $70; ETE is Best Buy #5 up to $66.     

— Igor Greenwald