Venezuela Renews Threat to Cut Oil Exports to US, Says Us Market Not Vital

Forbes ^ | August 15, 2005 | AFX News Limited

[FlatLandBeer]

He's a fool....It's our oil, we just let him pump it out of the ground and sell it to us.

Since oil is sold mostly on the spot market it really does not matter if he sells to us directly...

[John Valentine]

Then how come the ChiComs have locked up Venezuelan and Iranian oil in long term agreements.

The Chinese are trying to do several things at once with these deals. First. they are trying to cut deals that will give them oil at a predictable cost, less subject to fluctuation than the spot price. Second, they are trying to obtain oil at a below market price by offering sellers the chance to have a stable long term deal. Third, they are trying to use their petro-purchasing power to leverage a geo-political advantage and to disadvantage nations they see as long-term strategic rivals - like the USA. Fourth, they are trying to substitute barter for cash whenever possible to ease pressures on their foreign excchange reserves.

All these actions are typical of a state-controlled economy and reflect weakness, not strength.

And yes, oil isn't PERFECTLY fungible. Thaat's why I said it is relatively fungible. There are big differences in the composition of crudes from around the world. Most refineries are optimized for particular crudes. Venezuelan crude, if I recall correctly, requires some special refining processes to deal with its high sulfer content. Still, I stand by my central point.

[dennisw]

I agree with you. Chinese are bartering for sure as part of their Venezuelan and Iranian deals. You must pay cash when you buy fungible oil on the world markets