End of the Month... June 2022

Okay, it is the end of June. Time for a recap of data published this month for May by the really smart guys, with comments by a really dumb person (me).

First up is the various inflation gauges...

(Note that I have estimated the Eurostat for the USA, as the official data has not been published.)

Not much relief in the inflation outlook, although demand destruction is becoming evident in certain core areas. Even gasoline and diesel usage seems to be tapering off. Prices maybe not so much... but exports are still outweighing imports.

The personal income and outlays suggest a reason for this. (click to enlarge)

Is it a one month anomaly or the start of a trend? It's possible the old adage of not being able to get blood from a turnip... may be in play.

Now on to GDP. Which slid from -1.5% to 1.6%, and the headlines are about consumer spending decreasing from +3.1% in the 2nd reading and now at +1.8%. It's the consumers fault!! The consumers still remained positive in expenditures and overall GDP fell. Aren't we overlooking that 800lb. Gorilla?

I can remember when the consumers were 60% of the economy; then 65%; then 2/3's; and now 70%. That 70% gets stated as something normal, which it isn't...

That's since early in the 80's, so what might have changed? Let me back out some numbers and see what it might look like in "fun with numbers". (You can guess what I backed out)!

The line edges up in "fun with numbers", but not like the first graph. We can't speak of that, as it is politically sensitive. The bottom line... we did this to ourselves.

I can't really say whether the 2nd Qtr. GDP will be better or worse, but 2nd quarter is over with today, so it is only a matter of waiting for the 1st read at end of July. Frankly, I think it will be positive for 2nd quarter, but the ship is starting to tilt, in my opinion. 

I can distinctly remember discussion of whether or not we were in a recession in spring 2008. I am not sure when the decision was finally made of it starting in December of 2007. It seems it was given that date after the recession "ended" in June of 2009. 

So we won't officially know whether we are in a recession, until it is over, or when the fat lady sings.  

Review of EIA Weekly Report for 6-29-2022

 

The EIA.gov has released the latest weekly report. 

Here are some interesting tidbits... Our exports of Crude and Petroleum Products since March, is 120,789,000  million barrels more than our imports. Gasoline exports during the same period now stands at 16,135,000 million barrels more than our imports. And you wonder why.

There is some semblance of relief at the pump, as current conditions indicate the national average drifting lower another 18¢ to around $4.68. You would think they might be lower, with demand decreasing, but imports still rule the day. If and when Europe settles down, expect these high prices to continue.

As for Natural Gas...

The outlook seems positive for moderation in natural gas pricing in the United States, but the picture is somewhat distorted by Freeport problems. I would still expect the futures price to jump up from $6.95, as Freeport resolves problems toward the end of the year. 

As to why the UK has diverged from the Dutch TTF... I have no idea, nor am I that interested. 

That's it for now!

Still Too Early to Project C.O.L.A Increases... But the Early Bird Gets the Worm. Yuck!

Yes, it is too early, but I cannot help myself. After perusing all the forecasts of inflation, here goes. Of course an explanation is needed as to the rules regarding determining C.O.L.A.

CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) is the gauge used, not the headline CPI, as in CPI-U (Consumer Price index for ALL Urban Consumers). The difference being the salaried and technical folks are in the latter. 

Typically the CPI-W has lagged behind the CPI-U, (hereafter referred to simply CPI). This can be seen in the CPI reading of 292.296 (May-2022), compared to 288.022 for the CPI-W. Both started their indexes at the same time... back in the early 80s.

However, after lagging all that time, the CPI-W is catching up with a vengeance. Why? I don't know, maybe something to do with Covid. (That's intended to be humorous).

Certainly, a lot of things can change between now and then. Even the forecasts are suggesting a peak to inflation in July and then subsiding. It is not unreasonable to view current projections and expect 8.8%~9.1% as the potential range for C.O.L.A. adjustment. Although things appear to be outpacing forecasts to the downside.

• June CPI-W is forecast as 9.3%~9.4%
• July CPI-W is forecast as 9.2%~9.4%
• August CPI-W is forecast as 8.7%~9.0%
• September CPI-W forecast as 8.3%~8.5%.

Whatever the increase might be, it would be important to put that into perspective. Theoretically, the increase which comes in January 2023, puts you back to the purchasing power you had in July, August, and September of 2021. Any lost purchasing power is gone... forever.

The 2nd part of the discussion starts with Medicare Premiums. They jumped a lot this past year, due to the dementia drug and there is a belief that somehow a big drop is forthcoming as the Center for Medicare & Medicaid Services has altered their stance on that drug. 

Fine, but the anticipated hike in 2022 was for a jump from $148.5 to $158, without the dementia drug. The dementia drug's actual cost same in about half of the anticipated, which brings it back to the $158~$160 range. What about the increases in Medicare costs, aside for the dementia drug?

I would not expect any great reductions in Medicare premiums for 2023, although it should not deduct from the C.O.L.A. increase... as it had in years past.

Now to the scams... my wife received a letter from a well known entity, decrying some legislation in Congress that was intended to undermine S.S. Contributions were desperately needed to help stop this legislation.

I checked and found the legislation was proposed back in early 2021 and has sat in committee since, and has apparently been forgotten by all... except the folks desperately looking for revenue sources.

Maybe I am becoming too cynical, but when someone asks for money to somehow benefit me... I immediately become suspicious of them. It has served me well.

Bored on a Saturday Night

There is nothing on television worth watching, and the news is to be avoided. I have completed all my chores for the week and looking for something to do.

So, allow me to jabber about stuff, I know very little about... and prove to you how little I know.

As the EIA seems to be having difficulty with this past week’s reports… I am shooting in the dark, even more so than usual.

The futures market indicates UK natural gas prices will likely double from current, while the Dutch seems to believe in consistency, going into January of 2023. It strikes me odd, as the Dutch and UK futures had remained rather consistent until about a month ago.

I cannot quite understand why, but last fall, the topic of storage was in the news, and I do seem to recall the U.K. had divested itself of most of their NG storage capacity. . It likely was due to long range planning away from fossil fuels.

That's okay, as it is their business. My concern is the prices in the U.S. While prices have doubled and then some, the futures market seems to hold steady where we currently are. Naturally, the doubling of price of Natural Gas on the market does not translate to doubling of price to the end user, but $3.50+ per MBTU will. 

That adds up to about $20 a month more for the average American Household and it is important to remember... only about half of American households use Natural Gas, so about $40 more per month. BUT, most of those households rely disproportionately on Natural Gas in the colder months. 

Likely most Americans have adjusted. Nearly all of us use Electricity and about 40% of that comes from Natural Gas.

The problem will be when the Freeport company is back up to 100%. The problem with the chart above, is it omits the runup to over $9.30 per MBTU just prior to the fire at Freeport. Freeport accounts for about 17% of LNG exports. That fire caused a major disruption for exports, which reduced the draw on our own inventory. 

Freeport states they should be partially up and running in 90 days and at full capacity by end of the year. It is not a stretch to think U.S. natural gas prices will near the $10 per MBTU by then. 

Just double the above numbers and you can see the problem.

On the good news, the gasoline futures have slid 44¢ from their peak on June 6th. Gasoline at the pump always rockets upward, but fall like a feather. That price should continue to fall another 17¢, unless something else happens. If you are wondering about a discrepancy, rest assured the gasoline was on pace to hit $5.20 at the pump and then the bottom suddenly fell out. Something about bad economic news.

There was a bit of concern about some Canadian Model's itinerary, but the Canadian Model appears to have changed her mind. 

That wraps it for me, as this is started to be boring. Oh wait, maybe there is something on the streaming services, that I would be interested in, AND haven't seen a dozen times.😀

It's Politics As Usual, or How to Manipulate Weak Minds

As I am biding my time, awaiting this week's EIA Crude and Products report... I thought I would delve into my current frustrations.

Namely, the failure of the fourth estate… or the press, media et al. I blame them for getting Trump elected in the first place. So eager were they to boost ratings, they went right along with the Trump Phenomena early in the race. I am not just referring to that right wing network. It was “must see TV”.

No doubt they were sure Trump could not win a presidency and therefore… pushed him over other republican candidates.

Unfortunately for all, they managed to subvert the 2016 election, in my opinion. It was not the Russians or anyone else. The fourth estate handed that election to Trump. To distance themselves from any blame, they went on the attack, and it was furious. 

I have no quibble with any of that, but they destroyed what little credibility that remained. By 2020, it was clear that truth, like Elvis… had left the building.

The issue I have, is their great fear of a Trump or Trump-like person (Republican) might win in 2024, they have completely lost any civic responsibility… when it comes to a sitting president.

We should not blame Biden for the current inflation…

So... who do I blame? But wait... inflation is everywhere, so don't blame Biden.

Fair enough to blame their inflation on Putin's invasion of Ukraine, but what about the preceding year in the United States?

I have frequently mentioned this...

Take credit for vaccines, $1,400 checks to everyone and then ignore what might happen to supply chains under this new found wealth. But blame it on Supply Chain, logistics, ports, etc. Just don't blame Biden.

• The supply chain is snarled and causing inflation... don't blame Biden. (What really caused the ports to be congested in the first place)?
• This inflation is transitory... don't blame Biden. 
• It's Putin's invasion of Ukraine that is causing inflation... don't blame Biden. (For the past 3 months, but what about the previous 12 months)?
• It's the greedy oil industry, running up prices... don't blame Biden. (Take the energy component out of the CPI and the inflation rate would still be at a 40 year high.)

So great, I won't blame Biden... but who should I blame?

Even A Broken Clock is Right Twice a Day!!

In this digital age, there will be many that do not understand a reference from way back in the age of analog clocks. But on to the meat of the matter, or where’s the beef?

After months of American citizens complaining about inflation, certain politicians have determined it is a problem and are focused upon the problem. We should also understand the “rest” of the world is also experiencing inflation.

Except there was rarely a peep, until the “rest” of the world caught up with the U.S.A.

Here is a nice graph with annual inflation rates since August 2021. (Click on Picture for larger view).

Eurostat is the source for the EU, France, Germany, as well as the harmonized inflation rate of the U.S. Oddly the U.S. is not in the EU and is tracked, yet U.K. no longer appears anywhere. Someone is taking Brexit very seriously, imo. The U.K. is represented by its own Office of National Statistics, which has both HCIP and CPI. Then Canada data is taken from Statistics Canada. (I estimated the Eurostat numbers for the U.S. at 9.1%, but put 8.8% on this chart/graph to be safe on the low side).

Here is a chart as well...

There does seem to be inflation in these countries, but they are just now joining the inflation party, we have been experiencing for several months. As they say… numbers don’t lie, but politicians do. In this case, our politicians may not be lying, but have put off telling the truth until it could be spun as impacting a lot of countries. 

Clearly, we can see the impact of the natural gas pricing in the EU and UK, as well as the impact of the Ukraine invasion, for all including Canada. The U.S. can certainly join in the chorus blaming Putin, but what about the earlier periods, when both the EU and the UK were experiencing less inflation than the United States?

Why wasn’t inflation an issue then? Did our politicians need to wait for someone else to blame and then proclaim it's not my fault, everyone is having high inflation?

Hey, it will probably work... given the short attention span of most Americans. 

A Timeline of Events and Some Thoughts

How did we get where we are?

In previous postings, I made mention of the repeal of the Crude Export Act in 2015. That set the stage for exporting of crude from the U.S., which was due in part to drill baby drill and lowering of WTI prices within the U.S. As a result, ALL crude oil became priced on the global market demand. At that time, exports were limited to Alaskan Crude and daily exports were in the 500K barrel range.

Also at that time, WTI crude had fallen to $34.74 per barrel and gasoline stood at $2.026 per gallon nationally. This was down from the high of $100+ per barrel in July of 2014, as was gasoline at $3.60+ per gallon. Which was prior to drill baby drill taking hold. Hence the necessity to do something for the drillers.

In February 2020, WTI crude had risen to $51.43 and gasoline to $2.466. Exports of Crude were in the 3.5M barrels daily.

Of course, February 2020 gave us the first glimpse of COVID. With Covid the infamous negative futures price of -$37.63 in April (Monthly average at $17.13). People were paying someone else to take delivery of crude. Gasoline fell to $1.773 by end of April. Crude exports slowed to the 3M barrel daily level.

[All data from EIA.GOV]

The crude prices stayed in the $40 range until December 2020 and gasoline in the $2.20 range. It was about this time that an antsy public was given hope via vaccines. By February 2021, crude was in the $60 range and gasoline had jumped to $2.60+. 

While there had been spot shortages of many goods early on, they had mostly eased by this time, as well. There were lingering shortages of materials to repair equipment, build cars, etc. The economy was still out of balance, in my opinion.

As the shots became widely available and hopes of finally ridding covid seemed on the horizon... consumers became increasingly anxious to get out of lockdowns, etc. 

The economy had largely survived due to stimulus. It was in February that Texas had the big freeze, with impacted refining and saw gasoline jump to $2.80 range. 

Then came the 3rd stimulus, which even Miss Transitory thinks was too much... in retrospect.

It is nearly impossible to avoid what happened next, as the American Consumer went all in on a spending spree. This resulted in port backups, intermodal congestion and Just in Case inventory. Which in turn resulted in this...

Crude also began its climb, as demand increased. By end of 2021, it was nearing $80 and gasoline was in the $3.30 range. We were still exporting around 3M barrels per day. Even with the shuttering of older refineries. Why spend money on something that is being phased out, due to climate change?

Then came Ukraine and the recognition that Europe is dependent upon Russia. Before the invasion, Crude had already climbed to $92 and gasoline to $3.60. 

Interestingly, certain politicians have advocated assisting Europe wean itself from Russian energy. Even an age-old enemy such as Venezuela is now somehow to be considered friendly. An old friend (Saudi Arabia) that became NO longer a friend, is now to be once again... viewed favorably.

We are now exporting 3.5M barrels on average per day since March and some days goes above 4 million. And it's not just crude, but refined products as well. 102,309,000 barrels of crude and petroleum exports ABOVE what has been imported since first of March. Oh and 14,091,000 barrels of gasoline have been exported in that period, ABOVE imports.

Here is how it has flipped since this period in 2019...

I have highlighted the flip areas. Where once we imported more of all products, than we exported AND where we once imported more gasoline than we exported. 

In my opinion, we would still be seeing record prices at the pump, although not in the $5 range (certainly above $4 and still be complaining). So, it would be correct to blame the current prices on Putin, but to run around suddenly buddying up some folks, releasing SPR to the tune of 1M barrels a day, then complain about refineries doing what you asked, is a bit much. I am not defending refineries, just noting the hypocrisy of certain politicians.

What's next... blaming the high prices on climate change? We are just one hurricane in the Gulf from the blame game to shift to that very item. I also found the timing of blaming refineries, just as he or his henchmen got advance news of impending bad economic reports. Those bad economic reports have caused the futures of both crude and gasoline to fall nearly 10% this past week. 

I'm sure the subsequent fall in pump prices will be extolled as proof the refineries were gouging us. And many Americans will believe it, report it, etc. One reporter noted that we consumed 10% more gasoline this past week than the previous week, although the data says -1.0% for the week and -2.9% year over year. Seriously, are we that ignorant, not to see through these lies? Apparently, the answer is yes. 

Which brings me to the IQ of the American people. On certain social media boards, there are still individuals saying we should drill more, etc. without regard to the fact we are exporting. Some people haven't gotten the news or are ignoring it for political gain. 

Of course, the thread that caught my eye, was regarding the falling IQ of Americans. According to one individual, the IQ of Americans was once 110 and has now fallen to 99 and is a clear indication of our stupidity. That no one pointed out the obvious flaw and piled on to that belief... does indicate our stupidity. I doubt anyone caught the irony of the original post, including the original poster.

I consider myself of average intelligence and possibly with age... below. It is kind of scary to think where we are headed.

_{#gasoline #covid #crude-oil #alaska #opinion #exports}