Sunday, February 10, 2008

At least one of us doesn't understand how markets work

Either me or Hugo has it wrong, and given his infatuation with price controls as a way of dealing with high prices, I think it may be him. Anyway he's not happy with the British court ruling in favor of Exxon and freezing billions of Veneulan assets.

President Hugo Chavez on Sunday threatened to cut off oil sales to the United States in an "economic war" if Exxon Mobil Corp. wins court judgments to seize billions of dollars in Venezuelan assets. Exxon Mobil has gone after the assets of state oil company Petroleos de Venezuela SA in U.S., British and Dutch courts as it challenges the nationalization of a multibillion dollar oil project by Chavez's government. A British court has issued an injunction "freezing" as much as $12 billion in assets. "If you end up freezing (Venezuelan assets) and it harms us, we're going to harm you," Chavez said during his weekly radio and television program, "Hello, President." "Do you know how? We aren't going to send oil to the United States. Take note, Mr. Bush, Mr. Danger."

So this would be inconvenient but not really harmful, right? Oil is oil, it doesn't matter where we buy it from. Holding quality constant, price is determined by world supply and demand and who ships what where isn't crucial, is it? Unless there is some kind of situation where US refineries are designed to use oil with the specific physical attributes of Venezuelan oil or something weird like that.

I have found an article claiming that it IS hard for the US to replace Venezuelan crude (its heavy and sour, you know) but the analysis deals with a case when Venezuelan production was cut off resulting in a short term drop in available world supplies. Good stuff in there about types of crude oil though.

1 comment:

JW said...

There seems to be a rash of economic confusion going on lately, massive price controls to correct inflation in China, and surprise at the results, and now the good friend of Americans Hugo. I just hope it is not contagious.