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Thursday, September 01, 2005

Is the price of oil being artificially inflated for a reason?

First there's Russia getting all excited that the price of oil is going up.
Russia looks for a way to become an oil superpower
"In the 1970s and 1980s nuclear weapons are what gave the Soviet Union a position in the world. In this decade it's energy which has given Russian an entree to the top table," said Stephen O'Sullivan, a strategist at UFG in Moscow.
...
"It's interesting for Russia to be courted by so many countries. The United States is interested in liquefied natural gas, Europe in gas and China in oil," said O'Sullivan.
...
"There is a petro-arrogance in Russia right now," said Clifford Kupchan, an analyst at the Eurasia Group in Washington.

"They say it (oil) will restore their place in the world which has been denied them. They are wrong. What this will create is the oil curse, not a superpower," he said.
And then there's Venezuela, the world's fifth largest oil exporter and the biggest in the Western Hemisphere, who has given Jamaica a preferential oil deal for $40 a barrel.

Jamaica to buy cheap oil from Venuzuela
Chavez, who noted that "the era of cheap oil is over," said that Venezuela is providing assistance that is better than what has been offered by lending institutions such as the International Monetary Fund and the World Bank.

"Don't thank us. It is the call of conscience," Chavez said.
...
Chavez has extended preferential oil deals to countries throughout the Caribbean and Latin America, and to some as far away as China, seeking to strengthen political alliances as he moves to line up alternate oil markets aside from the United States, which he often criticizes as "The Empire."
UPDATE 4:30pm.

Chavez has been busy. On August 28, he signed an agreement with China to take them on as a partner in further developing Venuzeula's oil fields.

PetroChina parent inks Venezuela oil deal
Venezuelan President Hugo Chavez is seeking increased energy cooperation with China, the world's second-largest oil importer, to reduce the South American country's dependence on the U.S. market, the world’s largest.

Posted by Lucia Maria | 9/01/2005 04:25:00 PM

10 Comments:

Blogger Bernard Woolley said...

Thats the real war thats going on. China va USA for energy resources.

9/01/2005 04:42:00 PM  
Blogger Tane said...

Agreed. I hope it doesn't come to a shooting war, but even an economic one will be pretty devastating if the Yanks and Chinese go all out. Which they will, because oil is like oxygen to modern societies.

9/01/2005 04:58:00 PM  
Anonymous tincanman said...

Well, the Chinese are looking at alternatives to oil and haven't hedged all their bets on the one energy source.

9/01/2005 05:11:00 PM  
Blogger Antarctic Lemur said...

The Chinese consider economic matters as merely another form of warfare. This is well-known amongst Western defense analysts I believe.

I think a recent Pentagon report on China mentioned the source.

9/01/2005 05:28:00 PM  
Blogger Antarctic Lemur said...

The problem when one market player artificially inflates the price of a desirable commodity is you get other wannabe players suddenly find themselves able to undercut the inflater.

9/02/2005 12:31:00 AM  
Blogger Tane said...

That works when there is a surplus of supply over demand. Then a producer can gain market share by undercutting the competition.

If supply is only just coping with demand (as it is globally with oil), then why should anyone want to gain market share by undercutting? Everyone, except maybe the Saudis, is pumping flat out. They can't gain more market share even if they wanted to. Better to sell all that they can produce for the high price available. Party time in Kuwait and Caracas!

The Saudis may not increase their production either, as they will risk damaging their very mature super-giant and giant fields in the process.

I don't think the oil market is being artificially manipulated.

9/02/2005 09:10:00 AM  
Blogger Lucyna said...

Tane, did you not notice the preferential oil deal given to Jamaica by Venuzuela, as noted above? If that's not an undercut, then what is? And not only an undercut, Chavez is deliberately looking to sell his oil to markets other than the US.

9/02/2005 10:59:00 AM  
Blogger Tane said...

Aaah, good point Lucyna, I missed that. I guess it's less of an undercut and more of a subsidy. I don't think the Venezualans did it to gain market share, they did it to subsidise the Jamaicans in order to gain political support. The differences might be semantic, but I don't think 'gaining' the Jamaican oil market is going to send shudders through the Saudi oil ministry.

As for the Venezualans selling their oil to anyone other than the US, that is their right. Why should they be required to supply 10% of the USA's oil imports? I can see why Washington is deeply concerned about this issue, but it's not their oil. Chavez is very close to Castro true, but I can't see this as a problem. It's not like Communism is a viable option anymore, even in Central America.

9/02/2005 11:49:00 AM  
Blogger Lucyna said...

It is definately their right to do so, Tane. It just looks very odd when the normal strategy for oil is to sell to the highest bidder. To me it looks like a political strategy. Link that in with teaming up with China ... I don't know what it means exactly, it just doesn't look good.

9/02/2005 12:21:00 PM  
Blogger Tane said...

No, it doesn't look good at all. I agree that this is obviously not an economic strategy, it's a diplomatic move pure and simple. Maybe it will improve things for the Venezualan people in the long run, who knows?

To me, it's part of Hugo Chavez's attempt to break away from US hegemony. He's lined himself up with China to that end, but to be honest, I think his main allies will be the likes of Brazil and Argentina. He is teaming with China simply to fend off the US, but China is a long way away. The Brazilians and other Latinos are a damn sight closer. I don't think this will turn to a conventional shooting war between Venezuala and the US, but there is conflict between them already (diplomatic and economic), and I think this can only escalate.

As you said, it doesn't look good.

9/02/2005 12:50:00 PM  

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