Wednesday, April 06, 2005

Misguided Effort
A friend recently shared an email advocating a boycott of any oil company importing oil from Saudi Arabia. Whoever sent this chain letter out into the internet had done some homework, spending enough time on the Energy Information Agency website to tally up the quantities of Saudi imports by company. Unfortunately, they had spent no time researching gasoline supply chains or following merger news for the last five years. Otherwise, they'd have seen just how fruitless such a boycott would be.

Let's imagine a successful boycott of company XYZ, which buys dozens of cargoes of Saudi crude each year and refines them at several locations in the US. Since total demand for gasoline wouldn't be affected (heaven forbid that we drive our SUVs less!) the result would be vacant forecourts at every XYZ station, and more demand at stations carrying the Citgo, Sunoco, Phillips, Hess, BP, and other brands deemed to be "Saudi-free." Rapidly, these stations and the distribution terminals supporting them would run out of product, and they would have to turn to...XYZ, which would have plenty of gasoline in its tanks.

So fairly quickly, the virtuous consumers avoiding XYZ's stations would be filling up elsewhere with gas from XYZ, containing those bothersome Saudi molecules. Meanwhile, the folks suffering the most would not be the management and stockholders of XYZ, who would see their retail margins decline slightly, offset by higher refining profits, but rather the independent business people who actually own and operate 95% of the XYZ stations and have no say whatever in where XYZ buys its crude oil.

In reality, the kind of behind-the-scenes product shuffling I described above happens 24/7 across the US, as refiners and marketers loan each other petroleum products to cover temporary shortfalls and dispose of short-term oversupply. The notion that every gallon of gasoline can be traced back to the same company's refineries and ultimately to their proprietary oilfields hasn't been true for decades. The oil companies were doing supply chain optimization before anyone else had heard of it, and they are very good at it.

So if you're looking to blame someone for high imports from Saudi Arabia, Venezuela, or any other country whose policies you don't care for, you should recall the immortal words of Pogo Possum, "We have met the enemy, and he is us."

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