Strategic Petroleum Reserve and Politics?

I have read a couple of times, where our leaders have asked OPEC and others to turn on the oil spigot to overcome some shortages of crude. I have even read where the president has "released" some crude out of the Strategic Petroleum Reserve (SPR).

On the other hand, "we are trying to talk" about reducing fossil fuel consumption, particularly now that COP26 is underway. I say trying to talk, because I doubt anything meaningful will be adopted, except for promises yet to be broken... again.

I am not the brightest bulb in the pack, but it would seem to me that a commitment to reduce reliance on fossil fuels would also consider a plan to reduce the SPR over time. While this might seem an odd thing to do, it would reduce the current inflationary effects of crude prices as well as send a signal that we are moving away from this fossil fuel. 

Naturally an argument could be made that this method would cheapen the market price of fossil fuels, which would prolong their consumption, while reducing the current state of semi-independence for imported fossil fuels. However, I would consider a gradual reduction to be in order. Something akin to a planned reduction of 170,000 barrels per day for 10 years.

Of course, there is the horse and buggy phenomenon.  I am referring to the period where cars started to become mass produced. The horse and buggy industry saw the writing on the wall, ceased expansion and began reduction of inventory, etc., which became very profitable for a brief period, until the industry virtually faded away. 

We are seeing the beginning states of this in the U.S. oil production companies, in my opinion. It is quite a tightrope to walk between keeping these producers operating at near net import/export levels or accelerating the reduction in U.S. Oil. 

The origins of the SPR are rooted in the 1970s and an oil embargo. Here is a brief overview, entitled... History of the Strategic Petroleum Reserve. Here is some SPR Quick Facts. Then there is the IEA, with The global oil market remains vulnerable to a wide range of risk factors. Which states in part...

In accordance with the Agreement on an International Energy Programme (I.E.P.), each IEA country has an obligation to hold emergency oil stocks equivalent to at least 90 days of net oil imports. 

Which brings me to current situation... (the upper cut off is the 90 day line, which was broken through at various times in the early 90s and has been above that threshold since 2-2012)

Currently, the total volume of SPR is 614.2 Millions Barrels. Here is the 4 week net average of imports/exports from the EIA. Whatever measure... the 90 day rule applies would indicate a net import of 6.8M barrels per day... a figure not seen that high in 8 years. Currently it is running in the 1M barrels per day and below range. 

Clearly, the internal production of the U.S. oil industry could begin to fall to the wayside, if crude prices were to fall, and it is understood that financing of the industry could begin to subside, but at some point near the end it would collapse. 

Hence the politics angle. Any suggestion of sizable reduction at this point would be a nightmare for certain D.C. politicians of both stripes. There are those beholden to the oil industry, which would receive a dramatic drop in prices and those beholden to the green energy sector, for allowing a drop in energy prices to prolong the use of fossil fuels. 

That is why I would suggest that slow drawdown over a long period. No one really wins.

But that is just my silly idea, and I realize the notion of releasing a fossil fuel during a global climate meeting is preposterous. Not addressing the SPR is kicking the oil can down the road, imo. Not unlike what the global community is doing with climate change.

Positive Spins?

Yesterday gave us the initial 3rd qtr. GDP reading from the BEA, and while it was far below original expectations, it could be explained away as an anomaly, due to the obvious drop in goods, maybe from reduced car sales, supply chain disruptions, etc. Meaning not all is lost for the 4th qtr.

Today gives us the Bureau and Labor Statistics release of Employment Cost Index Summary. It was good news for wages since 3 months ago, with wages up 1.5%, compared to about 1% in inflation (BLS CPI). Year over year is still lagging as wages are 4.2% over last year, while inflation is 5.4% (BLS CPI) over the same period. 

It could be stated with reasonable certainty that wages are on the uptick and outpacing inflation. They will need to keep a healthy rise, as forecast for October inflation results is in the 5.7%~5.8% range. Not sure if rising wages can keep up with that pace, as the producers are pushing the additional cost downstream. That was reflected in last month's PPI report from the BLS.

Then there is the matter of the BEA's Personal Income and Outlays, September 2021. The troubling number would be the inflation adjusted disposable personal income drop of -1.6% in one month (current dollars). This is explained away as a decrease in government social benefits. This as personal income also dropped -1.0% in one month, also in current dollars. 

Personal consumption expenditures slowed from the August increase of 0.6% (chained dollars) to September's 0.3% (chained dollars).

It is that inflation adjusted -1.6% drop in disposable income that should be concerning going forward. How does that translate to continued goods and services improvement? It should be noted that a large part of the GDP improvement has been borne by the consumer, with their pct. of total GDP rising during the past 6 quarters. 

I guess time will tell, but attempts to put a positive spin on all of this will just have to wait. 

Trying To Push That Proverbial Rope.

We are familiar or should be... with the causes of current supply chain problems.

Let's be clear... the bottleneck is EMPTY containers taking up room on chassis and spilling over into container warehouses, docks, etc. This is clogging up the system and creating situations where multiple movements of both empty and full containers beyond the normal efficient "just-in-time" movement cannot take place.

To keep the goods moving, more containers are being built and a premium is being placed on empty containers. Just as the goods traffic is snarled, so are the return of empty containers. This is why the major rails shut down for one week in July and have since started metering to their midwestern hubs. For every chassis laden with goods inbound to that midwestern hub, the port must take one chassis laden with either an empty container or outbound goods. Here's a sampling from Freightwaves.

Until such time as the hubs in middle America are "un" choked, the ports will remain congested. And yes, there are driver shortages throughout the system. Truckinginfo.

It was nice optics to have some politico state the ports were now going to function 24/7 and then get 24/7 news coverage of the statement, but saying that and doing that are very different things. Where is the in-depth coverage and follow-up?

COP26

A meeting in Glasgow is to begin soon, to discuss ways to reduce carbon emissions and achieve some targets. A noble cause and more power to them BUT... apparently China and India can't even supply the expected paperwork AND at least one of their leaders is simply skipping the conference.

The current goals are cutting emissions in half by 2030 and net zero by 2050. Considering China and India are nearly one half of current emissions... it would require the rest of the world to be net zero right now. As both China and India are having difficulty finding enough coal to currently generate electricity and driving prices of coal upwards... if they were the only emitters, that 2030 goal is toast, imo. 

This is no reason to give up on emissions reduction, but realism needs to be on the table. It is certainly admirable to hope for the best but... we need to prepare for the worst as well. 

It should be noted Jaguar Land Rover is furnishing 240 electric vehicles to transport these folks around. However, there is likely not enough recharging capacity available, so Diesel generators will be used to re-charge. But this is not going to be that dirty oil, but HVO (hydrogenated vegetable oil). The type in fryers. Presumably this makes everything alright... even these vegetable oils were grown and harvested with old fashioned diesel vehicles. Or maybe all farm vehicles in the U.K. are now electric. /s

Oh, and before I forget, this from Deutsche Welle - UN says national climate targets 'fall far short'. So the even promises are not making the grade and we should recognize that promises often fall short of expectations.  

Note: Article written on 10-16-2021 and links may no longer be viable OR behind a paywall.

Light At The End Of The Tunnel?

 

Courtesy of U.S.C.G.

We are awash in shipping containers, with railyards, rail lines, trucking companies, ports, harbors, etc. 

How did we get here and when will it end?

Covid did create a disruption and one the just-in-time inventory management system has struggled to adjust. It has taken about 35 years to develop what was a mostly very efficient, mostly smooth movement of goods. As this transition took place, the need for massive warehouses was reduced with the reduction of manpower required to keep those warehouses operating. 

As efficiency improved, the requirement for trucking, rails, etc. was also reduced... with the manpower required to maintain and operate. 

That was all and good, until Covid, which not only created shutdowns, uneven distribution, but also a massive shift in consumer spending habits. We had China nearly shutdown, which impacted industries and retailers in the U.S., which may or may not have taken advantage of impending goods shortages, to shutter operations for the good of their employees. This put a lot of stuff in the wrong place.

Then we had the so-called legitimate shutdowns, which were region by region and even county by county. A very uneven shutdown, to say the least. Then there was a very uneven re-opening, with some rushing to re-start, while others resisted these efforts. During all of this, there was a gigantic shift in consumer habits, which accelerated during all the stimulus period.

One only needs to look at the BEA's GDP numbers associated with good and services, and see a dramatic shift to goods, both durable and non-durable, with a sizable reduction in services. Goods have increased about 18% over 1st qtr. 2020, with about half being in 3rd qtr. 2020, holding steady in 4th, then accelerating in the 1st and 2nd quarters of 2021.

In addition, the importation of goods followed a similar pattern, with about a 12% increase over that period. Such surges are difficult to prepare for, in such a short period of time. Essentially... Just-in-time has been erased for the foreseeable future.

Clearly, the system while not broken... is in disarray. There are glimmers of hope going forward. Here are a few articles that seem to be clearing the fog of misinformation, imo.

• Containers Piling Up At U.S. Rail Yards Add to Port Strains
• More truckers won't solve US port congestion, supply chain issues: Harbor Trucking Association CEO
• Rail freight is at the center of the supply chain crisis
• UP metering domestic intermodal out of Chicago, Memphis

Even recognition of TOO many containers (Lot of empties) as a problem and potential action by the State of California... by executive order of the Governor.

Everyone is trying to avoid being the Grinch that stole Christmas. Not to mention it is important to shift blame to the average person for leaving the workforce at this time and proclaim "worker" shortage. 

From the St. Louis FED... THE COVID RETIREMENT BOOM. 

So we made the system more efficient by reducing the workforce and now proclaim we need more workers. 

Good Luck!

Not So Random Thoughts

Capitalism and Corporatism

We think our country is a capitalist country, but I suspect it has evolved into corporatism. As companies grew in size and captured more share market, they squeezed out competition required in a capitalist society. Obviously true capitalism was running rampant and needed to be held in check from their nefarious business dealings, oppression of workers and harm to consumers. 

The evolution of government controls led to smaller companies being overtaken by larger companies. 

As these industrial giants took over such vast swaths of their consumer spending habits, they found it beneficial to lobby for their own industry with the concept of "what's good for General Motors is good for America". 

You probably remember hearing that saying, but there is a major problem... that is not exactly what Charles Wilson said in full context. The context being that he once believed it, but no longer. 

In any case, we have the healthcare industry, the military industrial complex, the education industry, the law enforcement industry, the agricultural industry, the retail industry, automotive industry, financial industry, legal industry and every darn thing out there has an industry, complete with lobbyists and PR people speaking on its behalf and enticing their respective workforces to answer the call of duty. 

Any time there is an instance of misbehavior, cheating, lying, etc. they are all over it with the PR spin, which includes suggestive comments about the overall viability of the industry being threatened and the impact on those critical wage earners and how truly awful it would be if these poor hard working Americans are affected. How dare you point out any malfeasance!  Every industry is quick to point out their importance and necessity... true or false.

Journalism as an industry...

Ran across this example of corporatism... When the local newspaper leaves town: the effects of local newspaper closures on corporate misconduct (PDF)

This was a hoot. I don't care where that newspaper is located, its source of revenue is through subscriptions or advertising. The newspaper that does not adhere to the local citizens and advertiser's way of thinking... simply cease to exist. Even if the national news has a crushing expose on a company with a local footprint, that local news outlet will print large swaths of the paper to the company rebuttal, with assurances the company is benevolent and considerate to local needs. Casting dispersions on a local person's place of employ is not conducive to subscriptions and gaining advertisements. 

What has happened is these local sources have been swallowed up by larger companies and streamlined to internet platforms. BTW, please do not think journalists are unbiased. How else can you explain graduates of prestigious schools jumping from so called "left wing" news organizations to so called "right wing" news organizations. Just like any industry... you must conform to the ideology of the masters or risk losing that position. 

Once the American people had companies competing for their attention, and companies had to meet certain expectations or face the wrath of the consumers. There is no industry truly policing itself and competition is nearly gone. Just as Law Enforcement does an inadequate job of policing itself, so does every other industry... including journalism. 

Journalism might be pure in the world of academia and for a short period after graduation. Money tends to erode ethics. 

All those we are supposed to rely upon are... MISSING IN ACTION.

Note: Article written on 10-15-2021 and links may no longer be viable OR behind a paywall.

REAL GDP, ENERGY, INFLATION

You won't see it on the weather, but it appears a political hurricane is about to settle over the country and the eye of the storm will be D.C., where all will appear to be calm, bright and sunny. The spin outside the beltway will reach hurricane proportions.

There appears to be a shortage of black ink, but an amazing supply of rose tinted glasses and red ink.

The 3rd quarter is in the history books, but the data for that quarter is still rolling in, and with one week to go... the Real GDP is falling off a cliff. It started the quarter just north of 6.5% annualized and is now in the 0.5%~3.5% annualized range, with a week worth of data still to parse. Let's hope that optimistic 3.5% holds or even adjusts upward, although it is doubtful. 

I say doubtful as Real GDP is minus inflation and the inflation forecast for October is edging upward and now in the 5.7% to 5.8% range. If everyone gets their holiday shopping done early... then December will a real drag. 

As the forecasts stands now, the Real GDP is not really growing so much... we are simply paying a lot more, for a bit more goods. 

We can expect the Republican party to make hay out of next Thursday's GDP report and the Democrats to explain it away. Not real certain how the average American will react to a GDP report, as it may only reaffirm their waning consumer confidence. I would suspect the administration will continue to sell all these ills as signs of a growing economy, however slowly, and the believers will drink the Kool-Aid, at a higher cost... if there is any on the shelves. 

Not doubt the highly inflationary energy portion will be highlighted and the average American does pay attention to the cost of gasoline, as well as those heating bills, which have been played up as potentially staggering.

There may be disruptions to energy supply, stocks of crude oil (tight), gasoline (very tight), distillates (tight), propane (very tight) and natural gas (normal). 

• Excess is above 5 year range.
• Above normal is upper end of 5 year range.
• Normal is middle of 5 year range.
• Below normal is toward lower end of 5 year range.
• Tight is at the bottom of 5 year range.
• Very tight is below 5 year range.

Propane is the worrying component, as it is not only below the 5 year range, but days supply is at its lowest since October 11, 2013. Propane is not only used for heating, but is used considerable in the drying process during fall harvest. 

All of the above information is from EIA.GOV. Just as this chart data is derived from the same website...

Weird Stuff Roundup!

Some strange things on the internet...

 'Testicle bath' birth control device earns Germany's Dyson Prize

That is what you call "cutting" edge technology. You have to watch the video to get the full nuts and bolts of its workings. Shame on me.

Speaking of cutting edge...

Kentucky store earns Guinness record for world's largest pocket knife

How can it be called a "pocket" knife, if it won't fit into a pocket. Well maybe this lady's pocket... "Attack of the 50 foot Woman".

Where's your sense of humor?

If you don't like it... just turn away.

AP Photo/Radivoje Pavicic

This is love or something. 

Being the Northern Hemisphere, it only rotates clockwise. Think about it!!