Why isn’t Venezuela vs. Exxon a bigger deal?
February 15th, 2008 by Grant in: Economics, Oil & GasVenezuela has taken steps to fortify their dominance in the oil and gas market, and has said it will suspend oil shipments to Exxon Mobil Corp (XOM: chart, web, Y!). This is an obvious attempt by Hugo Chavez to thumb his nose at the United States, however I’m not sure what his true motivation is: money or power… perhaps both.
You see, the crude oil coming out of Venezuela is heavy crude high in sulfur, making it very difficult to refine in comparison to light sweet crude. The high sulfuric content wreaks havoc on industrial components due to its highly caustic and corrosive properties. It just so happens that a few of Exxon’s refineries in the Gulf Coast have the capability to refine heavy crude with a high sulfur content. But not just anyone can refine Venezuela’s oil.
I believe Chavez is trying to inflate the price of his countries crude by selling it to third parties who would then turn around and sell it to the United States, thereby doing an end run on any pricing agreement already in place between the two countries.
Crude oil is all Venezuela has in terms of economic stimulus, which is why Chavez has had so much attention since crude turned north of $50 per barrel. Consequently he has a deep interest in keeping oil prices high, and eeking out every last cent per barrel exported.
His popularity in his own country has been sliding, and losing an economic battle on your home turf only increases the threat of a coup.
The United States is going to get the oil it needs from somewhere, be it Venezuela or otherwise, and the significance of lost imports from Venezuela isn’t as great as one might seem. Canada is more that willing to replace Venezuela’s heavy crude with it’s own, and if they won’t, Mexico will.
Truthfully I believe Hugo Chavez is starting to lose his big bully influence through the power of a free market. In this light, Venezuela needs the United States more than the United States needs Venezuelan crude.
Tags: crude oil | Economics | Hugo Chavez | Venezuela
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February 17th, 2008 at 8:57 pm
hugos days are numbered. he can’t maintain popularity with oil at these levels, the venezuelans have to be asking themselves where all the money is going
February 26th, 2008 at 10:18 am
[…] had a few teaser comments in my post on how Venezuela is cutting off their supply of crude oil to the United States, and I noted the low quality of the crude they export to us, and I touched on the refining […]