Chavez wrong on price path, cutoff threat

Aug. 27, 2007
Hugo Chavez says the darnedest things.

Hugo Chavez says the darnedest things.

At a meeting of Caribbean government leaders in Caracas Aug. 11, the Venezuelan president first observed that oil prices “are headed straight to $100/bbl.” Then he repeated a threat to cut oil supplies to the US.

He’s wrong on both counts.

The day before he spoke, the spot price of Brent crude was $69.57/bbl, nearly $10/bbl below its peak of the prior month and more than $5/bbl below its level of the same time a year earlier. This is not the trajectory Chavez described.

Someday, the crude price might reach $100/bbl. But to say it’s “headed straight” to triple digits is incorrect.

It’s also untrue that Venezuela will cut oil flow to the US.

For starters, the condition Chavez specified-“if they attack us again like they did in April of 2002”-won’t materialize.

The US didn’t attack Venezuela in 2002. Yes, discerning Americans cheered that year’s coup attempt against Chavez, which, alas, ultimately failed. But attack? Please. And the US wouldn’t attack a country just for having a president given to shrill utterance.

What’s more, cutting oil sales would further squeeze a state oil company on which Venezuela’s economy depends. Petroleos de Venezuela, increasingly forced to sell oil cheap to satisfy presidential promises, would have to find new buyers for heavy crude. And its Citgo subsidiary would have to scramble for alternative feedstock for its refineries on the US Gulf Coast.

While PDVSA and crude buyers in the US could adjust to a Chavez cutoff, PDVSA would have the harder time of it. Venezuela needs US sales more than the US needs Venezuelan oil.

In fact, the Venezuelan need for oil sales to nearby buyers paying full price grows with each soft deal Chavez makes to ingratiate a neighboring government. His audience for the $100/bbl forecast, for example, was in Caracas for a meeting of Petrocaribe, the group of nations to which Venezuela supplies oil under conciliatory credit terms.

High oil prices paint over serious corrosion at work in the Venezuelan oil industry. As damage spreads, it’s perversely amusing to wonder what darned thing its cause will say next.

(Online Aug. 17, 2007; author’s e-mail: [email protected])