BCT Editorial – 5/28/06

This page was last updated on May 29, 2006.

Oil shook up; Editorial; Beaver County Times; May 28, 2006. Though it appeared in the print edition of the Times, this editorial was not posted on the Times website at the time I wrote this critique.

Rather than transcribe the whole thing, I’ll transcribe only the couple of paragraphs I want to comment about.

Below is a detailed critique of the subject editorial.

“Americans had better be careful what they say about Mexico, Mexicans and illegal immigration.

“If they get too belligerent and offensive, Mexico could pull a Saudi Arabia and use its oil as a diplomatic weapon.”

[RWC] Before I get to meat of the critique, who’s being “belligerent and offensive” except the fringe wackos on both sides of the argument?

For Mexico to “use its oil as a diplomatic weapon,” some conditions need to be in place.

First, Mexico needs a strong economy. Given the millions that illegally flee to the U.S. just to get jobs, Mexico doesn’t meet this condition. The bottom line is, Mexico can’t withhold its oil from the market without going broke in no time. Remember, oil is the #1 contributor to the Mexico economy with “revenue” from Mexican illegal aliens in the U.S. #2.

Second, you need a closed market in which Mexican oil sent elsewhere wouldn’t ripple into oil from other sources finding its way to the U.S. That is, if Mexico doesn’t sell its oil to U.S. refiners, it will sell it to someone else. As a result, the other crude that would have been refined by “someone else” will find its way to U.S. refiners.

Third, Mexico needs a market for its oil. Currently, virtually all of Mexico’s exports go to the U.S., and the vast majority of that crude is Maya, a heavy, sour crude. That means Maya is a difficult (read expensive) crude to refine and requires sophisticated refineries. Historically, U.S. refineries are the most advanced and thus are the best suited for low quality crudes like Maya. While other refineries can process Maya, they tend to get yields of lesser value and that would affect the price those refiners would pay for the crude.