When one looks around at some of the reasons why supply is merely inching up around the world, government decisions that have impacted supply adversely abound.
Many readers of The Barrel are familiar with them. It starts with Mexico's long disdain for foreign investment, except in the Burgos Basin. The result: collapsing output everywhere in the country, except, you guessed it, the Burgos Basin.
It continues through the quasi-nationalization of Venezuela in the last year. The result: Venezuelan production is about 2.4 million b/d, and it should be a million barrels a day higher.
Want some more? the US government is buying some of the best-quality crude on the market and sticking it into salt domes. This policy arguably can be defended on certain grounds, but the estimates of this 90,000 b/d impact have been in excess of $10/b.
On the demand side, various governments all around the world -- the Chinese, Iranian and Venezuelan examples are probably the best known -- use a combination of price caps and subsidies that have the end result of lifting demand in a market that is already facing a tight supply/demand balance.
Of course, government policy is putting supply on the market as well. The US is consuming about 200,000 b/d of ethanol, an amount that would be far less -- it might even be zero -- if it wasn't for a bevy of supportive state and local policies. Whether this is wise is the subject of an ongoing debate.
The ethanol example leads us to another recent development that could impact commodity markets in general and biodiesel in particular. Argentina has just laid on some new steep taxes on its agricultural sector, and farmers there just ended a three-week strike. Investors Business Daily, in an editorial today, rips the government of Christina Fernandez, predicting that exports and production from that country will both collapse. In a market where the tie between agriculture and transportation fuels gets ever tighter, it's no longer possible to view developments like this and think there will be no impact. And whatever impact there is all ties back to government policies.
One slightly amusing development linking agriculture and oil -- Argentina exchanging meat for fuel oil with Venezuela, which has been going on for the past couple of years...
Just in Latin America alone . . Mexico, Venezuela, Argentina, Bolvia, Ecuador, . . production is well below potential due to regressive government policies .. a part of the reason we have tight petroleum supply in the world. Sadly the people of these countries are deprived of the real economic benefit of progessive policies that would increase investment, production,employment,and their economic well being.