Dollars and Jens
Monday, January 29, 2007
supply-chain bottlenecks
It's not important that you read the post from which this originates, but it's suggested that
[Hugo] Chavez's popularity depends on his largess, but the strength of his finances (which used to be known as the government budget) depends upon refinery capacity among oil-consuming nations — the essential bottleneck that has caused the current price spike.
This is actually exactly wrong; shortages of refinery capacity will drive up the cost of gasoline, but will push down the cost of petroleum. Oil is only worth something insofar as it can be converted into gasoline, asphalt, cheese whiz (I assume), and other consumer goods; if refining capacity were permanently cut in half, the value of oil would drop dramatically; the refiners would only be buying half as much as they do now.

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