The fungibility of oil is the reason you can get a daily quote on the price of a barrel of oil, without specifying where you are in the world or what company you want to buy it from. There's no difference at all between a barrel of crude Venezuelan and a barrel of crude Canadian. You could mix it all together and it would be exactly the same...and that's more or less what happens when companies sell it.
This is not precisely true. There are a few things that distinguish crude:
1) Viscosity--some crude oil is heavy, some is light. There are many shades.
2) Sulfur content--high sulfur content oil is called "sour crude" whereas low sulfur content oil is called "sweet crude."
3) Location is important--we'd much rather get most of our oil from the western hemisphere as it takes less time to get from where they pull it out of the ground to our shores. This is important for a number of reasons, some of them fairly technical and involved with how the oil markets work. But obviously, the shorter the supply chain, the less likely it is to be disrupted.
The first two are particularly important--one of the sayings that got bandied about last year and apparently accepted as true without questioning is that lack of refinery capacity is what drove the price of gasoline up, not lack of oil supply. This is true in a certain sense. It requires a number of modules that are not contained in most refineries to fraction heavy sour crude. Prior to 2004, light sweet crude was still abundant. But it peaked that year, and ever since then, the proportion of heavy sour crude has been growing. Heavy Sour crude is called heavy for a reason--it weighs more because it's denser than light crude. It therefore takes more energy to get it out of the ground and to transport it, making it more expensive at the outset. The additional sulfur content also requires extra refining, and there are comparatively few refineries that can handle it.
The problem is, no more refineries are being built. Oil companies are quite aware that it would not be profitable to build them, not because the price of oil has gone up tremendously, but because there will not be enough oil to supply any new refineries by the time the original investment is recouped.
In any case, I have a couple more comments about some misconceptions I saw in this thread (and I'm sorry to sound like a sanctimonious prick, but this is one of the most important issues we face and I consider it necessary to speak up--I really mean no offense to anybody):
1) The Oil Majors are to blame for high prices. This is not correct. Don't get me wrong; I don't think the Oil Majors are a nice and well-meaning bunch. But oil is traded on exchanges (2 principle exchanges, the West Texas Intermediary and the Brent) in much the same way that stocks are, except the vast majority of oil is sold by futures contract within a narrow band of the spot price. If you look at the amount of money traded daily on the 2 major exchanges, it vastly exceeds the profits that the Oil Majors clear in a quarter. This means that even if they wanted to manipulate the markets, they wouldn't have the cash. They're aware that Aramco and others are still sitting on a decent inventory, so they have to sell near spot if they want to make money.
High oil prices are to be blamed on supply fears which appear to have been correct. This is not a situation that can or will get better.
Incidentally, if you actually try to buy a barrel of oil at spot price, you'll find it very difficult to do. A little is sold at spot, but 99% of it is sold at a contract rate that is off-spot by some percent. Spot is, in turn, just an average per barrel of the contracts reported.
2) That we can develop domestic sources. Again, not really correct. Some new technology may help matters, but every time someone has an idea it's trumpetted as "THE" solution and it never turns out that way. CO2 injection is the current rage, but preliminary results are lackluster. Oil production peaked in 1971 in America. We have a drill density that is higher than any other country on earth. There's just not going to be any major sources of oil developed in the U.S.
3) That boycotting Citgo will hurt Venezuela. Also not true, and this is where Kandahar has a decent point. If we don't buy it, the BRIC nations certainly will. Boycotting CITGO hurts us; Chavez would laugh it off if we stopped buying his oil; Jintao has said he would take as much as Venezuela could pump. This is important for more than just that reason, though. Of all the oil producing nations, Venezuela is one of the few major ones that still has any spare capacity. It also hasn't peaked. If they get motivated to make contracts with other countries, whatever supplies we have secured are likely to run out before Venezuelan oil will run out, leaving foreign governments with a fueled army amidst an entropic world while ours has stalled. Surely even those on the right can see that would be a bad thing.
