The president of Venezuela, Hugo Chavez, is in Harlem at the moment offering to sell cheap heating oil to the masses. That's mighty big of him now that oil prices have come off their highs.
Yesterday, Chavez addressed the United Nations. Several times he referred to President Bush as the devil. His buddy, Evo Morales of Bolivia, did an impressive impersonation of a drug dealer, waving around a coca leaf in his hand. Even President Ahmadinejad of Iran was more respectful. Yet the audience applauded Chavez enthusiastically, which makes me wonder why we host the U.N. in the first place. Why not pack it up and send it to Caracas? Then we'll see just how accommodating Chavez is to foreigners who insult him in his own backyard.
Back in 1994, when Venezuela's government was more friendly toward the U.S., I was invited to teach a short course in capital budgeting to PDVSA executives. PDVSA is the state-run oil company. The students were very smart and favorably inclined toward modern techniques of investment analysis. No doubt under the current regime many of my former students are out of work.
Countries like Venezuela and Iran are swimming in cash because oil prices went up so high. This windfall has made them arrogant and more willing to openly criticize the U.S., the world's biggest oil consumer. But if current trends continue, they will tone down the rhetoric.
Oil prices are headed lower because oil traders no longer fear impending shortages. We haven't run out of oil despite tensions with Iran and Venezuela, troubles in Nigeria and Iraq, and a production cut in Prudhoe Bay due to BP's pipeline corrosion problems. Not long ago, gasoline prices rose above $3 per gallon. That was enough to reduce demand on the margin. Oil and gasoline inventories are now higher than expected. But prices will eventually stabilize simply because lower prices invite more demand.
Conspiracy theorists are convinced that the Republicans have somehow managed to figure out how to manipulate oil and gasoline prices. According to this theory, the Republicans are pushing prices lower at the moment in order to improve their chances in the upcoming elections. Don't you buy it. Oil is a commodity. The price is set by buyers and sellers in the futures markets, not by politicians in a back room. If the Republicans were truly able to lower prices, they would have done so long ago. Besides, despite the recent drop, prices aren't cheap by any stretch of the imagination.