Gasoline Prices Soar. Now I'm sore. Ouch!

We have all been heading to the pump with less zeal lately. Gasoline is way way up and Americans can feel it. I was searching all over the net to try and find out why. I have found the answers for you and while they probably will not make you happy, they might give you something to chew on. In summary of a recent CNNMoney internet post linked to the title above:

• OPEC has hinted (merely hinted!) that they will reduce supply over the coming year. Who would believe this would have such an affect!
• Chavez threatened a week ago to shut off oil exports to the US on account of Exxon, but this threat was quickly swept under the rug as Venezuela went toe to toe with Colombia this week.
• Apparently things are also getting spicy in Nigeria and as our largest African crude source, everyone feels a little bit upset over that as well

In summary, crude is high today making gasoline high today all because people are afraid that in the future supply just might drop. That is pathetic if you ask me. I never remember such silly stock trading in the recent past. Prices just did not jump like this prior to Katrina. Oh well, I guess we will just have to tighten our belts a bit.

Hugo Chavez: El Lobo de Llanto

Why are these men smiling? Perhaps it is because they both realize that in addition to their large oil and gas reserves, they each have an even more reliable cash cow that actually works better in the absence of human capital: empty threats.

This idea is certainly not lost on America’s favorite southern neighbor, Hugo Chávez. Venezuela’s flamboyant leader has once again threatened to cut off its oil exports to the United States in reaction to a lawsuit filed by Exxon Mobil over Venezuela’s expropriation (“nationalization”) of one of Exxon's projects last year.

For someone who presides over a country that relies on oil and gas for nearly 90% of its exports, one might think that Mr. Chávez would know a little bit more about how the oil industry works (or perhaps he does and hopes that both the world and his fellow Venezuelans do not).

First, oil is a global commodity, meaning that the U.S. could choose to shift its import-country mix and import more oil from one of its other suppliers (Canada, Mexico, Saudi Arabia, etc.). These countries would certainly owe Mr. Chávez a great big thank you for allowing them to divide up the revenue from the nearly 2 million bbl the U.S. currently imports from Venezuela.

Secondly, again because oil is a global commodity, any Venezuelan exports could be purchased by another country and resold to the U.S. This is precisely why no country can effectively use the so-called “oil weapon” to deny their oil exports to a specific country. Although they benefit from threatening to use the “weapon,” by spooking oil prices upward, discriminate oil export embargoes can no longer work in practice.

Thirdly, Mr. Chávez conveniently forgets that the U.S. is one of the few countries who will pay high prices for Venezuela’s heavy (and sour) crude exports, ironically refined at Petroleos de Venezuela (PdVSA) subsidiary refineries in Houston, Lake Charles, Corpus Christi, and Port Arthur, among others. In other words, even if Venezuela was able to “cut off” all oil exports to the U.S., it would be shooting itself in the foot by both eliminating its highest-paying (and largest) customer and losing its PdVSA refining revenue.

Given that Venezuela's economy, as well as the political career of Mr. Chávez, relies so heavily on oil export revenues, "cutting off" oil exports to the U.S. would be economic and political suicide. Hopefully, such idle threats issued by socialist and theocratic (Iran) leaders alike will be seen for what they are: empty rhetoric from toothless, crying wolves.