The Oil Drum

This is a guest post by John Robb. John is an author, an entrepreneur, a blogger at Global Guerrillas, and a former USAF pilot in special operations. His book, Brave New War was published in April 2007 by Wiley, which can be purchased here. The book apparently is influential, since Robb was named one of the "Best and Brightest" by Esquire Magazine and invited to speak at a plethora of venues (the DoD, CIA, NSA, NIC, Highlands Forum, Center for Biosecurity, and many more). The book is also being used in universities from the Naval Post Graduate School to Johns Hopkins.

The run-up in oil prices over the last four years is usually framed, likely correctly, as a combination of torrential demand from developing countries (China and India), speculation, and peak supply. Other analysis indicates that production is also being damaged due to NOC mismanagement, political instability, and rapid increases in domestic consumption within oil exporting countries.

However, the rapidity and volatility of current oil prices may be due to a more narrow set of factors surrounding the production of light sweet crude: the comparative quality and scarcity of light sweet crude, world demand, and guerrilla systems disruption.

The title comes from this excellent article from MyWestTexas, Valero trading room grapples with 'Feeding the Beast' (reprinted from the San Antonio Express News):

On the sprawling trading-room floor at Valero Energy Corporations's headquarters, planners, traders and their bosses grapple every day with a task they call "feeding the beast."

Valero's 18 refineries chew through 3.3 million barrels of crude oil a day, oil that the San Antonio-based company buys from around the world.

And today we learn that the US consumption beast is not the only thing Valero is feeding. DoD awards Valero contract to ship jet fuel to Israel.

The Department of Defense has awarded Valero Energy Corp. a $36.8 million contract to supply military-grade jet fuel to the government of Israel -- the United States' key ally in the Middle East.

How's Valero doing? Let's talk briefly about how this refining and retail company does business under the current oil and gasoline market conditions.