July 13, 2006

Citgo’s US Retrenchment: Strategic Reaction by Hugo Chavez, or a Strictly Business Decision?

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 10:35 am

The dry Fox report tells us the news:

Citgo to Stop Selling Gas to 1,800 U.S. Stations
Wednesday, July 12, 2006

CARACAS, Venezuela — Venezuela-owned Citgo Petroleum Corp. has decided to stop distributing gasoline to some 1,800 U.S. stations, shedding a lackluster segment of its business while forcing the owners of those stations to find other suppliers.

While it may create some logistical headaches for gasoline retailers in the short term, the move should not have any impact on the nation’s overall fuel supply.

Citgo, which is wholly owned by Venezuela’s state oil company, currently has to purchase 130,000 barrels a day from third parties in order to meet its service contracts at 13,100 stations across the U.S. This is less profitable than selling gasoline directly from its refineries.

Instead, the Houston-based company has decided to sell to retailers only the 750,000 barrels a day that it produces at three U.S. refineries in Lake Charles, La., Corpus Christi, Texas and Lemont, Ill., according to a statement late Tuesday.

….. The states where Citgo will stop selling gasoline are: Iowa, Kansas, Kentucky, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma and South Dakota. A limited number of stations in Illinois, Texas, Arkansas and Iowa will also be affected.

Hugo Chavez is essentially forcing what remains of Citgo in the US to be self-sufficient, and may be doing so to ensure that he will be unaffected by any attempts in the US to embargo his native Venezuelan production.

It could also be that enough consumers are aware of Citgo’s Castro-sympathizing ownership and have stopped buying the company’s products because of Mr. Chavez’s increasing belligerence. If so, by doing so American consumers have forced Citgo to do the kind of retrenchment any company in a similar situation would consider doing.

It will be interesting to see, as much as we can (difficult because the company has taken steps “go dark” [last item at link] to avoid public reporting and disclosure requirements), how Citgo’s remaining American operations fare in the next few years.


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