Will Chavez Cut off Oil to the US? If so, what happens?
Over the weekend Exxon Mobil succeeded in getting a British Court to freeze assets that were seized last year by Venezuela’s state-run oil company. This morning, Venezuelan “President” Hugo Chavez vowed to cut off oil supply to the US if the British Court injunction of $12 billion in assets holds up.
Oil prices spiked more than 4% on the news. So what does this mean? What will happen? How do you play it, if at all?
First, is Chavez for real? Will he cut off oil to the US? Ah, that would be a no, he won’t. It’s simple really. Dictators need stability in order to remain in power. For Chavez, this is especially true. In last year’s elections, he was soundly rejected in an attempt to get himself elected ”president for life.” The income derived from oil and other natural resources is paramount to Chavez maintaining control. This guy is nothing but a podium-pounding blowhard, and he is less than nothing without our money for his oil.
So why did oil go up? Why does oil always go up? Because there is no shortage of speculative dollars waiting to pounce on situations like this one. But there is no imminent return to oil over $100. So I would just leave it alone.
And what if the worst happened, and Chavez did cut off oil to the US? There would certainly be a very short term shock– maybe at most a month of oil being 20% higher– then a quick return to normalcy. Does Chavez really think the rest of the world would not step in and increase production to fill the gap? Of course they would. Within hours. And speculators might move in and make some quick money, but not likely the average investor.
Exxon is another story. For nearly a year it has been trading in a channel between the high $70s and $95. It hits the $95 mark and immediately falls off. But it never goes lower than the high $70s, and most of the time, no lower than the low $80s. As the price stands today, there is about $14 of upside in the channel, and should it drop below $79 and stay (a sell signal), a downside of about $3. This in a company that is incredibly profitable (XOM just reported the single most profitable quarter in the history of the stock market) and a company that is buying back literally billions of dollars in shares every quarter. For the short term and the long term Exxon looks like a good play.
Disclosure: As of publication I have no positions in the stocks mentioned here. I am not a professional, but I am trying this at home. It is highly recommended that you consult a licensed financial advisor or broker before making any and all investment decisions.
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So here’s what I’m thinking we should do after we take over the land of Chavez. We need to put out the word to all the illegals in the US that amnisty is around the corner. All they have to do is go to Venezuela and work on the new pipeline that would go from South America to the United States. Any country that denied access would go by the way of the newly occupied country. So, these illegals work part time on the pipeline and go to school the rest of the time to learn English and generally beef up their education. Then, by the time the pipeline reaches the US, they’re ready to take their place in American society, English literate and well versed in metal working. Nothing like a win-win situation these days.