Wednesday, September 23, 2009

EIA Weekly Petroleum Report

The following was taken form the U.S. Department of Energy's Web site today:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.8 million barrels from the previous week. At 335.6 million barrels, U.S. crude oil inventories are above the upper boundary of the average range for this time of year. Total motor gasoline inventories increased by 5.4 million barrels last week, and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 3.0 million barrels, and are above the upper boundary of the average range for this time of year. Propane/propylene inventories increased by 1.3 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 8.0 million barrels last week, and are above the upper limit of the average range for this time of year.

That last line, the 8 million barrel increase? And the "above the upper limit of the average range"? Those 2 data points are not supportive of any meaningful expansion in GDP in the recent past. The question of whether or not it is supportive of Oil prices in US$ terms is a more complicated story, and the short answer to that is "No". Please note that "not supportive" means nothing in the data would lead me to go long, but that does not mean that the price will not go up (just to make me look bad), it just means in the short run it will be without me.

The Fed says that economic activity has picked up in its report today... and it has, but only because the rate of decline that the economy experienced last year could not, by mathematical necessity, continue. Nothing in energy consumption, rail traffic, the Baltic Dry Index, etc... is giving me a warm and fuzzy feeling. That, too, does not mean that equity prices cannot extend their rally... they can. If you throw enough money at any asset class prices will rise.

There is still a great deal of government stimulus money waiting to be spent, and that will have an inflationary pressure for at least a couple of years, and we might yet "get" another stim pak from the economic geniuses in D.C. Destroying the nation's currency by printing and borrowing and spending (remember "tax and spend"? How quaint.) will actually make us feel better in the short term, very much the way a heroin addict feels just before he dies from an overdose.

The year over year decline in Oil imports appears to be leveling off in the mid 8% area. It will be very tough for the US economy to experience any REAL GDP expansion without an uptick in Oil supplies and consumption. Ergo, any increase in equity prices will have to come from stimulus or multiple expansion... or an increase in Oil supplies.

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I think we are passed the point of a financial collapse brought on by a banking collapse (despite the fact that there is another wave of foreclosures about to swamp the banks... and no, I am not bullish on the banks, or should I say "Bank", the Fed is really the only bank we have). The various Central Banks and national treasuries have shown they will do whatever is necessary to destroy the value of paper money to shore up the banks. Nor will a collapse come from a default by the U.S. Treasury. No, the next, and final, financial collapse will come from a currency crisis in the form of the end of the US$. While it could come sooner, I would guess that the final wipe out of the US$ will come sometime between 2014 - 2019. Somewhere in that 5 year period lies, in my opinion, the highest probability of a political/currency crisis in the U.S. that will absolutely, positively spread through out the world in devastating fashion. Of course, as in all probability theory of certain outcomes with uncertain timeframes the distribution of probability will be on a bell graph, with standard deviations emanating from the peak of the graph left AND right. That means there is a small likelihood that this could take place tomorrow, with a much higher likelihood of occurrence in 2014-2019, and then a small likelihood that it takes place sometime thereafter.

And, yes, I firmly believe this to be the most likely outcome and timeline, and, no, I am not happy about it, am not wishing for it, or hoping that I am correct. If the data changes, I will change my mind on a dime.

What could accelerate this? A rapid decline in Oil imports into the U.S.

What could prevent this? Moving Federal, state, and local employees AS WELL AS the Social Security and Medicare eligible age to 72+, ending unemployment insurance, cutting the military budget by 80%, and discovering a new Saudi Arabia every 2 or 3 years, et al... piece of cake, right?

Right.

Greg



10 comments:

bureaucrat said...

Um, here to ruin your day again, but I need to remind you that the average age of retirement here in the U.S. is 63, and half those people retire because they want to, and half retire because they HAVE to. You ever seen a 68 year old person going to work? (I'm imagining my 70 year old dad trying to remember where his work desk is :)). I've seen a bunch of them people working as baggers and helpers at the supermarket. Everyone should work as long as they want and can, but after awhile, you just have to say, as the manager of a business, that enough is enough. Humans wear out! Hell, I'm only 42 and I can tell my memory and night vision are starting to decline. I jog on the treadmill but I AM gonna die someday. You can try to keep Orville at his pipe machine making pipe till he's 71, but the bathroom breaks alone are going to cut his productive capacity in half!

And I'm taking note of your communist undertones regarding dumping Federal pensions. We can find you. :)

Greg T. Jeffers said...

Bureaucrat:

I was being sarcastic, bro. NONE of any of that is going to happen - that was the f^&%ing point.

Publius said...

My dad worked as a dentist until he was 72, and he only retired because he felt peer pressure to retire. I enjoyed dentistry, and regretted retiring. Maybe he's an exception, but jobs that require skill, craftsmanship and experience are often done better by the old and wise. An extreme example is a concert pianist...

Another point to make in response to Greg's post and Bureaucrat's response:
Just because it seems fair and just to provide a good income and retirement to the elderly does not mean it will be possible.
The cliche says that politics is the art of the possible.
The possible, in terms of politics and economics, does not mean: "what is possible according to the laws of physics."
It means, what is possible in terms of convincing human beings to cooperate via market, political, and social mechanisms and systems?

The government will no doubt attempt, through a combination of increasing taxation, inflation, and shell games, to appear to fulfill it's "obligation" to the beneficiaries of its programs.
It will not succeed.
Oh, sure, the elderly won't be allowed to starve in the gutter in great numbers, but their lives will approximate the lives of the retired in the post-collapse USSR. A few potatoes and some watery soup.
UNLESS you are smart enough to be nice to your kids and grand-children.
There is no natural law that mandates that strangers take care of the parents and grandparents of strangers.
The current system was the result of a brief period of American Empire and cheap oil.

All political systems depend on active participation, passive participation, or at the VERY LEAST non-resistance.
The slightest resistance, passive or active, will blow the dam.

People and communities simply dropping out of the official economy in large numbers due to the absurd treadmill of hard work and usurious taxation (with little benefit from it) ensures the death of the taxpaying cow.
When the farmer works his animals to death, the farmer himself ends up starving.

Denial and extend and pretend is the order of the day, and it is the conventional "wisdom."
The anger unleashed when those who have paid into gov't and private ponzi schemes realize they won't get theirs will be astounding. And the anger will be backed up by action.

Publius said...

Typo:
"He enjoyed dentistry, and regretted retiring."
I personally do not want to become a dentist!
For some reason, dentists have one of the highest suicide rates in the health-care profession...

Greg T. Jeffers said...

Pub:

"When the farmer works his animals to death, the farmer himself ends up starving"

bro, you've been hot lately.

Keep them coming

bureaucrat said...

Well if extending the retirement age to 72 was never realistic and was the "fucking point," exactly what are going to cut to bring government spending down? At least I admit that there is no there there (without a massive capitulation by the rich and elderly of this country). If you are ready to give up, and acknowledge that there is no friggin way government spending will ever be cut in America (you yourself just proved it'll never be done with regard to Social Security), just go with the flow and agree that 10% inflation (someday) is the new reality and is baked in the cake. We can do that for decades! :)

Dan said...

Bureaucrat

Why would anyone hold dollars if they expected 10% inflation? Then question answers itself; 10% becomes 100% that becomes…

Donal Lang said...

I think oil price is out of the front line for a while too, and the banking crisis won't play out for a couple of years, if only because the governments have demonstrated that they'll sink or swim with the banks (and no-one really wants to contemplate the 'sink' scenario).
I think the next crisis will be the markets. We've had the fake bounce, and I think October or November will see a big downward reality check.

As for retirement; if you mean losing your job and then having to grow vegetables and chickens to survive, then I think a LOT of people will be working long into their retirement!(and probably healthier for it too!)

P.S. Publius; with all due respect to your Dad, I don't WANT a 72 year old dentist!!

Anonymous said...

It looks to me like the value of $70/BBl in today's dollars is about what the economy of the world can stand at this point. Efficiencies and replacement technology will come in time, but economies seem to be shrinking to keep the price as oil constant. Perhaps we will never see $300/bbl oil, just a slow ride down.

Some days it seems like Mish is right on with deflation, and others like MS is right on with inflation. Perhaps it is just Mish's turn for a couple of years and then...

Regards,

Coal Guy

Publius said...

Donal:
No offense taken!
All I can say is that there are plenty of young dentists, doctors, computer techs, etc. who are basically incompetent, while there are old guys who do a great job.
Research has shown that the speed with which people can do tasks may decrease with age, but the QUALITY of their work can keep on increasing. The muscle memory, the wisdom and skills can keep on keepin' on.
Again, I think the arts are the best example of that: an Old Master painter, or musician, keeps growing and improving until the end... or can.

This is inspiring to those of us who, like Greg, are in our 40's with children, and who will likely need to keep contributing to our family's economy until the end of our lives.
But is that so bad? Is it better to sit around watching TV and rotting?
Think more like Jacques Cousteau: die with your wet suit on.