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Bloviating Zeppelin: Oil War

Bloviating Zeppelin

(in-ep-toc'-ra-cy) - a system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.

Tuesday, February 12, 2008

Oil War




CARACAS, Venezuela (AP) - 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."

Chavez has repeatedly threatened to cut off oil shipments to the United States, which is Venezuela's No. 1 client, if Washington tries to oust him. Chavez's warnings on Sunday appeared to extend that threat to attempts by oil companies to challenge his government's nationalization drive through lawsuits.

"I speak to the U.S. empire, because that's the master: continue and you will see that we won't sent one drop of oil to the empire of the United States," Chavez said Sunday.

"The outlaws of Exxon Mobil will never again rob us," Chavez said, accusing the Irving, Texas-based oil company of acting in concert with Washington.

Exxon Mobil spokeswoman Margaret Ross said the company had no comment. A U.S. Embassy spokeswoman in Caracas did not return a call.

Venezuela accounted for about 12 percent of U.S. crude oil imports in November, the latest figures available from the U.S. Energy Department. The 1.23 million barrels a day from Venezuela makes that country the U.S.'s fourth-biggest oil importer behind Canada, Saudi Arabia and Mexico.

And oh, yes, about Exxon/Mobil:

HOUSTON - Exxon Mobil Corp. posted the largest annual profit by a U.S. company — $40.6 billion — on Friday as the world's biggest publicly traded oil company benefited from historic crude prices at the end of the year.

Exxon also set a U.S. record for the biggest quarterly profit, posting net income of $11.7 billion for the final three months of 2007, beating its own mark of $10.71 billion in the fourth quarter of 2005.

The profits and politics of oil.


BZ

21 Comments:

Anonymous obelisktron said...

Exxon Mobil cannot freeze the assets of a nation. This is against international law. Furthermore, Exxon was offered a concession and a joint partnership on the projects, which they adamantly refused, asking for a price way over what their project was worth.

Exxon has tried to legally bind the joint project previously undergone by both PDVSA and Exxon, to prove that an arbitration award is justified. They claim they have proof of this attachment, which they say, will thereafter be used in court to win a compensation. However, in actuality, they have no legal basis as there was no provisional remedy of attachment, and they cannot prove it in a court of law. They simply were able to freeze the assets pending on their claim.

This is basically legal crap by exxon in order to freeze assets so that Venezuela is forced into a settlement instead of having to go through the legality that can draw on for months, and in the meantime PDVSA can't operate as it stifles operations and the financial situation of a sovereign country.

Chavez, knowing this is basically a legal loophole that exxon is abusing as presented by his advisors, has reacted by attacking the 'american empire' as a culprit conspirator in a plot to undermine Venezuela's sovereignity. Because he cannot understand how exxon has managed to somehow bypass international law, which prohibits the freezing of assets of any nation by any company.


Thereafter, Exxon has a flimsy legal claim, but it was sufficient to get the assets frozen. If it had happened internally in Venezuela, this would have been catched early at some low level court. But since exxon operates internationally, Venezuela had very little chance to refute such claims until they were presented with the freezing of assets.

Furthermore, Exxon has not actually frozen assets of PDVSA, because that would be illegal. They are trying to make the legal claim that they can go after the accounts related to their previous projects, which perhaps is simply an attempt to get Venezuela to settle.

PDVSA will probably pay 4 billion and then they will drop the case in order not to lose and that will be it. But still, the principle that a company cannot bully a nation has been internationally broken, which could spark retaliation by other OPEC nations against exxon.

I just hope the gringoes know what their doing, because it won't be exxon who has the last laugh on this one, I assure you.

Mon Feb 11, 11:51:00 PM PST  
Anonymous obelisktron said...

Furthermore, Chavez has made the comment, that on the surface may seem childish to any impressionistic language, as a signal to other oil exporting nations to react to the bullying of exxon, which has enjoyed the largest profit margin in history. He has tied the threat to Exxon winning in court, which is viewed as unjust, to the trigger of an oil embargo to the United States, and perhaps also an endorsement by the other OPEC members.

In other words, even if Exxon somehow manages to win in court with its trepidatious claim, it will still be a detriment to exxon and perhaps to a small extent the US. Because exxon will lose many future projects, and the oil price may just spike up for a little while before returning to normal. While Venezuela, while losing 4 billion, might make headway with the other OPEC members for unity, and with his massive amounts of oil money can quickly replenish exxon's award.

Mon Feb 11, 11:59:00 PM PST  
Anonymous Obelisktron said...

By oil embargo I mean Venezuela. But even a small decrease in supply for such a small period of time can cause disturbances that could very easily spark price up to over 100, although it would surely get back whithin 'normal' bounds thereafter. That surge, quite ironically, is sufficient by analysts in Venezuela to make up for Exxon's court order, time consumed, and a possible win.

Tue Feb 12, 12:05:00 AM PST  
Anonymous obelisktrom said...

= they would start shipping oil barrels to the US and sell it only once it reached 100 for example, making the deals for stock of barrels ahead of time due to a speculative target (if they thought it would reach 98 for example, they would sell at 96 beforehand), so that the sudden supply wouldn't bring down the price back to normal suddenly and they would capitalize on the surge.

So, basically, exxon needs negative coverage by cnn international and cnn and exxon needs to be pressurized so it stops being a monkey swinging the courts.

I don't think there is an invasion of Venezuela any time soon, especially with Obama being the next president, so that's assuring too.

Tue Feb 12, 12:16:00 AM PST  
Anonymous Obelisktron said...

I stated that they would 'stop' the case in order not to lose. I meant exxon, not venezuela. Exxon knows it will be difficult to prove this in a court. So they would be glad to settle before ever resolving the court battle and see its fruition.

Trigger trading is also already in place for large amounts of barrels at a set price under the speculative target by stock reserves in the US. They are used to buying at a target above normal, but later sell it at higher when a target is reached with agreements settled beforehand. This would be Chavez's strategy presumably with a surge. Its even said he is using this as an excuse to make sure his exchange control, which releases dollars at 30% of what their worth in order to keep people in Venezuela buying cheap goods. This is an excellent profit opportunity for people that plan to sell those products in the future when the exchange rate returns to normal. Its illegal however to sell those products currently to the exterior, so sometimes people overinvoice, but that is illegal too. No preferential dollars are given to anyone other than nationals---sorry :).

In essence, exxon is giving the excuse to chavez to hold an exchange rate that gives prefential dollars made on oil money...so that rich people can buy a citation that normally goes for 10 million for 3, and then sell it back to the US at a profit of 7 after the exchange returns to normal (this is a bit more complicated, its legal, but I am not going to give you any secrets, sorry), presumably in a couple of years, and all at the same time being legal.

So, exxon is a bitch stealing your american dollars for eventual releasing back to you at a discount to all nationals of Venezuela.

Tue Feb 12, 12:52:00 AM PST  
Anonymous obelisktron said...

on the other hand, some of those dollars are sometimes exchanged for rmb, and thus, you lose total wealth as a country. Exxon isnt getting screwed, neither is Chavez, its you. They both plan on recuperating their money, at your expense. But in reality, Chavez has just been charging at demand/supply prices, he isn't to blame--Exxon on the other hand, has not, Exxon doesn't care if your prices are raised in order to make up for extra profit on its stupid little project in Venezuela, even though it made 50 billion in profits, the largest net in a year in history. It could really care less.

How does this reflect on americans as a people? when their own company doesn't care about the soverign status of another nation, and amorally sees it fit to bully it just because it didn't give a higher concession that would include speculative profits. Or doesn't even care for its own people that might have their oil prices raised because chavez cannot understand how exxon defies international law, and in his mind, can only see a conspiracy?

how does that reflect on america when it bullies other nations? It would actually benefit me personally if exxon bullied and in turn, raised oil prices. Its not going to affect exxon, it will affect you. Its not foreign nations like venezuela, which simply charge what demand demands. Its companies like exxon that have no regard to any moral standard or sense of nationality because of their sense of freedom due to international status, that will in the end, screw america.

Its companies like exxon that don't care if people in venezuela go hungry because chavez has to pay for the court order that will in turn cut into profits, and not allow the country to grow. Its companies like exxon that AGREE with venezuela to charge the american consumer higher than it should, to make a profit. Its exxon that doesn't care if it harms americans, even though it had the largest profit margin in history, just to make more profit.

Blame exxon, they don't need their whatever billion dollars they want from a poor nation like Venezuela---they don't care--they simply want more money...so that their CEO's can make not 5 billion, but 6. That's how petty american corporations like exxon are. Shame on you exxon, shame on you. And shame on the american people for letting it happen.

Tue Feb 12, 01:27:00 AM PST  
Blogger Bloviating Zeppelin said...

Wow. How do I respond to that? Whew!

BZ

Tue Feb 12, 06:13:00 AM PST  
Blogger bigwhitehat said...

I would start the response with, "Get a Blog." I am baffled by folks who can use so many words and say so little.

Exxon and all the other Petroleum companies are free to do what they want. If they do it in court so be it. But I wish they would all have the decency to stop all business with Chavez.

Transportation is the name of the game in the oil business. If Chavez had to export farther away because his neighbors quit buying, his whole outlook would improve.

But like I said, this largely the responsibility of the industry.

Tue Feb 12, 06:51:00 AM PST  
Blogger A Jacksonian said...

Heh.

The idea is coherence and well thought out before you type... and that is *my* problem: I am and complete thoughts tend towards length with me.

As for Exxon/Mobile, they are making money on volume of sales, not disparity of profit margin, which has not fallen out of its traditional range per barrel. There is just so much *more* flowing that its profits are record, as are other oil companies. Volume is the key.

Meanwhile, the powers that be in Turkmenistan are now putting the screws to Ukraine as well as Iran. And for all the views that Russia is behind every plot, this time I do believe they are being gulled by one of the best economic minds on the planet... unfortunately he is in organized crime and Russia picked him up on tax evasion charges. Strange how Iran and now Ukraine are getting shut off from Turkmenistan natural gas. That can't be playing nice in Russias older natural gas pipeline system.

Venezuela is well on its way to duplicating Iran's internal deterioration of its petro-infrastructure. Whenever you hear *threats* from Hugo, ask yourself: is he threatening to cut off supplies out of spite, or because he soon won't have the output? Luckily the Red Mafia isn't too present in S. America, outside of some gun running by Bout and such. Otherwise... well... a competently run criminal system does, actually, sound more reliable than an incompetent State system. Just mind the arm and leg cost down the road.

Tue Feb 12, 08:45:00 AM PST  
Anonymous oble said...

I never said exxon charges more than supply demand, but they will force venezuela's hugo chavez to increase prices, just so they can get their court win and say 'don't mess with exxon'...well, its not a surprise chavez is saying 'don't mess with opec nations'....and that's a very, very, slippery slope. This should be destroyed before it ever sees the light of day. And exxon, yes, should not be bullying another country. They have a right to court. But by international law they are breaking the law, even though they claim attachment, because without proof, they are merely bluffing, and in the meantime PDVSA loses revenue. A case could be made with equal legitimacy in court, that Exxon was merely bluffing, and in turn made PDVSA lose money and investment time that could have gone into developing projects, asking for compensation in return from exxon, all these projects that exxon is delaying furthermore, could have potentially reduced the oil price for the average american. As a project is finished and more oil is processed, that means more output, and less relative demand. And all because they want their little win. So in essence, they are screweing you, not chavez. Chavez can make up the money very easily, and really what their doing is sending an aggresive message that I am sure will be answered in kind by all OPEC nations.

Whatever, I won't be watching this closely anyway and it will probably benefit me financially either way. But if you want to get a story right, what I have written above summarizes it pretty nicely.

Tue Feb 12, 10:35:00 AM PST  
Anonymous oble said...

o, and on the mass buying---he would not sell all his oil once it reaches a target, for no one would agree to buy at that price, it woudl surely drop once he dumped all his barrels. The way this works, is by increasing supply slowly and making deals beforehand. For example, he withdraws oil barrels from the US. He then increases supply by 2% each 15 days, with every successive target slightly lower. The rest is shipped to India and China, for example. In the process, he makes up for shipping costs as he made more money by slowling increasing supply and capitalizing on the increased price. He could obviously, bigwhitehat or whatever the hell your name is, make more money by simply shipping to the US...because of speed of transfer= he can sell more barrels more rapidly, and make more money. This makes up for any increase in price due to distance. However, there is a way where there is a zero sum because if he increases supply to the US slowly he capitalizes on the increased price and does the deals beforehand so that oil doesn't bounce from peeps around the world trying to make the same money. By the time everything is said and done, and supply starts increasing, he will end the 'war' and prices will slightly dip...In the interim, he would have waged an oil embargo lasting 2-3 months as a backlash to exxon with the same profits he would have had anyway.

Tue Feb 12, 10:45:00 AM PST  
Anonymous oble said...

However, in all honesty, this is unlikely to happen because he faces the risk of losing large profits just to get back at exxon. They will most likely, simply settle (chavez and exxon). But Chavez, is pushed, is ready to lose some profits to get back at exxon, simply due to the perception that their in the wrong and doing things out of spite, and chavez will retaliate just on principle and his anger, perhaps.

So I wouldn't be so sure to call it a bluff. Chavez is ready to do this if he is pushed. He perceives america as a threat and he has enough money already the he can survive 2 months without oil after all the revenue he has.

Tue Feb 12, 10:50:00 AM PST  
Blogger Gayle said...

Wow! I don't think you need me in here, BZ. LOL! I'll just say "Hi" and "this sucks!" and leave it at that.

Tue Feb 12, 11:53:00 AM PST  
Anonymous oble said...

two extra pointa I FORGOT to mention (half hearted laughter)--exxon didn't freeze actual active accounts of 12 billion. They are simply sending a political message. They do plan to recuperate their money. But it basically comes down to sending a message of don't change contracts in the future. They could have done it in a more noble way, and therefore, will most likely be punished as Chavez sends another message saying OPEC nations won't be bullied.

Tue Feb 12, 01:19:00 PM PST  
Anonymous oble said...

their financial claim is pure bs. I thought it was over-estimated, but now it turns out its complete pie in the sky talk. So, its more political than financial obviously.

Tue Feb 12, 01:20:00 PM PST  
Anonymous oble again said...

I again researched the feasibility of target trading, and it turns out due to transporation costs, time of transportation and refinery costs.....Venezuela could not accomplish a benefit, it would be to its detriment not to trade with the US. But unlike what news headlines project that it would harm more Venezuela than the US, I disagree. I think Venezuela can handle not selling oil to the US for a couple months, perhaps 4-5 and even 6. He can make it up in other ways, and he can halt his social programs and keep on financing some of them with revenues he already has, although at a decreasing rate and he would probably have to revalue the preferential dollar exchange rate that allows people to buy things at 30% its cost. This, in fact, is the main reason why he needs to sell to the US, not the social programs. If he gets rid of the preferential dollar exchange, it would not be much of a problem once he amasses some wealth in the oncoming months. It would hurt both sides, but I think Venezuela is in a better position. Politically he is better off than often perceived. He still holds and overwhelming popular vote, and 6 months of less than a stellar economy, with people used to inflation and other nuisances, I don't will make much of a difference quite honestly. The population is already innoculated to this type of thing.

We will have to see though, there may be hidden elements that turn out to detriment chavez. He definately cannot survive more than 6 months. Chavez needs the US more than the US needs Chavez, that is correct, but only in the long run. In the short run, he can wage little wars and have it affect the US tremendously as things are multiplied in various economic sectors and the stock market.

Tue Feb 12, 02:42:00 PM PST  
Anonymous oble said...

In essence, if Chavez plays it right, the US has more to lose than does Chavez.

Tue Feb 12, 02:43:00 PM PST  
Anonymous oble again said...

algorithmic trading, or simply done by protocal, with futures of oil price and bulk stock, timing at set prices releasing small quantities of total production, seems to not have the edge that is needed at the current moment. But still, it could still work wonders if the infrastructure was there, then the electronics and protocals can do the rest.

Tue Feb 12, 03:01:00 PM PST  
Anonymous Anonymous said...

cnn again thinks that exxon has frozen 12 billion in assets. They seem to be getting it wrong over and over again. Incredible. Exxon did not go after PDVSA assets because that would be illegal. They went after the joint venture account of their own project.

The headline should be 'exxon freezes own accounts, amounting of 12 billion, of which 300 million are of PDVSA'S as a precursor to legal hudlum'

PDVSA has already moved much of their accounts in switzerland. They need to answer the legal claim and this has made things slower, but no active accounts have been frozen. So PDVSA doesn't want to settle because exxon somehow has it caught by freezing its own project accounts. It is a political message and psychological affront. It would be good if they settled because the legality drawing on and on would cause disruptions in oil orders. The most likely scenario is that the court simply reaches a mid-point, between exxon's fantasy claim of 12 billion, and Venezuela's 4, and that will be it.

Wed Feb 13, 08:30:00 AM PST  
Anonymous Anonymous said...

They are simply putting a ceiling of 12 billion, even though they havn't frozen any accounts, so that they can bargain. They will get destroyed in court because they will not get their 12 billion, that's fantasy, and will instead have to resort to something in the middle, which is their real objective.

Wed Feb 13, 08:36:00 AM PST  
Anonymous Anonymous said...

Exxon is in the wrong, but Chavez is even more wrong in his reaction just because of Exxon's trivial compensation demand. Before I thought he might go through with it. But now it appears there could be an implosion inside the goverment due to a retaliation by market forces related to a political change in climate that has just recently reared its head.

Thu Feb 14, 02:53:00 PM PST  

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