Heading Out

Seeking the winds that help to sail on Shakespeare's tide.

Thursday, February 17, 2005

The (oil) plot thickens

There is an interesting article in The Houston Chronicle dealing with a possible way forward on oil supply and refinement. It may initially seem as though its a good deal, but it carries a caveat.

The Venezuelan oil company PDVSA owns Citgo which operates refineries along the Gulf Coast that can refine the heavy crudes from Venezuela. At present the Venezuelan Government would like to sell more of its crude to China. Concurrently the Saudi oil supply includes about 1 million barrels a day (mbd) of a heavy crude that they are having problems marketing since it requires special refineries, such as the CITGO ones that are currently fully committed to the PDVSA. So if the Saudi's bought the refineries they could displace the South American crude with their own and sell a problem asset. The Venezuelan oil could then be sold to their more politically correct customers in China (providing they can produce the refineries of the right type). So it could be a win-win situation. The alternative, as the article points out, is for the Saudi to build more of their own refineries in country.

Lest you think this might get us off the hook, unfortunately it merely provides a way of absorbing and using the "sixpence" that is the last remaining 1 to 1.5 mbd of oil that sits between available supply and rising demand. There seem to be more articles pointing out that it is unlikely that oil will drop below $40 again. And OPEC are still talking of reducing supply in a couple of months. It should be noted also that since those refineries are currently running at about full capacity, and are not increasing it, there is no net increase in oil supply to the US, the increase ends up going to China.


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