Future of Economy and Inflation

[Markola]

^^^^^ Environmental policy is always an easy scapegoat. Without it, we’d still be burning lead gasoline. Those prices are mostly due to how the petro economy works. What was it, less than two years ago when full tankers waited offshore, because no one wanted the excess capacity? Corporations slowed production in response and it takes a while to get it flowing again. Throw in a sudden shooting war in Europe and resulting sanctions that require Europe to rebuild its oil and gas sourcing and, voila, $6+ premium.

 

[almost there]

High demand / Low supply....

 

[GravitySucks]

^^^^^ Environmental policy is always an easy scapegoat. Without it, we’d still be burning lead gasoline. Those prices are mostly due to how the petro economy works. What was it, less than two years ago when full tankers waited offshore, because no one wanted the excess capacity? Corporations slowed production in response and it takes a while to get it flowing again. Throw in a sudden shooting war in Europe and resulting sanctions that require Europe to rebuild its oil and gas sourcing and, voila, $6+ premium.

Agree. Plus:
Add in that Irans, Venezuelas, and now Russias oil not in the open market and the Saudis not increasing production for their own reasons and you have to put geopolitics in front of green initiatives as the shortage driver.

 

[ShokWaveRider]

A few comments on US Petrol Prices.

IMHO the USA fossil fuel prices have been subsidized, allowing oil companies to pay next to no taxes and still make huge profits.

US residents have long enjoyed these low subsidized gas prices. Just for comparison, California notwithstanding.

The average price of gas in the USA in US Dollars based on a 3.78 liter gallon is around $4.50 per gallon. Canada $5.99, UK $7.99 & $8.42 in Germany. And US compensation traditionally has been higher than other countries all things being equal, restaurant servers notwithstanding.

So we should really suck it up and thank our lucky stars for all those years we made out like bandits. Only in the US are there a massive quantity of personally owned gas guzzling monsters on the road. Most other country residents drive smaller more fuel efficient modes of transportation. Just sayin'

 

[MichaelB]

A few comments on US Petrol Prices.

IMHO the USA fossil fuel prices have been subsidized, allowing oil companies to pay next to no taxes and still make huge profits.

US residents have long enjoyed these low subsidized gas prices. Just for comparison, California notwithstanding.

The average price of gas in the USA in US Dollars based on a 3.78 liter gallon is around $4.50 per gallon. Canada $5.99, UK $7.99 & $8.42 in Germany. And US compensation traditionally has been higher than other countries all things being equal, restaurant servers notwithstanding.

So we should really suck it up and thank our lucky stars for all those years we made out like bandits. Only in the US are there a massive quantity of personally owned gas guzzling monsters on the road. Most other country residents drive smaller more fuel efficient modes of transportation. Just sayin'

The post prompted me to look at some financial statements. Below a screenshot of thei latest 10-Q for ExxonMobile. It looks to me like they’re paying, or at least provisioning, $2.8B on profits of $8.5B, which is a bit over 32%. What tax subsidy are you referring to?

As far as I know, petroleum prices in Europe are much higher than in the US, not because of US subsidy, but the result of additional taxes imposed by European governments with the intent to discourage consumption. Not an expert so I may be wrong.

 

[Koolau]

A few comments on US Petrol Prices.

IMHO the USA fossil fuel prices have been subsidized, allowing oil companies to pay next to no taxes and still make huge profits.

US residents have long enjoyed these low subsidized gas prices. Just for comparison, California notwithstanding.

The average price of gas in the USA in US Dollars based on a 3.78 liter gallon is around $4.50 per gallon. Canada $5.99, UK $7.99 & $8.42 in Germany. And US compensation traditionally has been higher than other countries all things being equal, restaurant servers notwithstanding.

So we should really suck it up and thank our lucky stars for all those years we made out like bandits. Only in the US are there a massive quantity of personally owned gas guzzling monsters on the road. Most other country residents drive smaller more fuel efficient modes of transportation. Just sayin'

IIRC the main differences in those prices shown above is taxation aimed directly at consumers. Those taxes - even if collected from oil companies - are taxes to the consumer.

Even if your points are correct, the issue is that suddenly going from $2 gas to $5 gas is disruptive to the economy and can easily trigger inflation and a recession. Even if you think high prices are "good" for some reason, their sudden application are problematic.

 

[ShokWaveRider]

Even if your points are correct, the issue is that suddenly going from $2 gas to $5 gas is disruptive to the economy and can easily trigger inflation and a recession. Even if you think high prices are "good" for some reason, their sudden application are problematic.

I never said it was not disruptive, it obviously is as many folks here are not used to the prices and simply cannot afford it.

My point is that a lot of other countries have had way higher prices than ours for a long time and seem to manage. Their cars typically get a lot better gas mileage.

As far as oil company subsidies, they must be getting some kind of benefits as folks in power are always talking about how the oil companies do not pay their fair share of taxes, we hear about it enough, probably not zero though.

This link is not naked, it is to corroborate the above paragraph regarding subsidies.

https://grist.org/accountability/follow-the-money-us-subsidizes-oil-and-gas-so-investors-never-lose/

 

[NW-Bound]

... Only in the US are there a massive quantity of personally owned gas guzzling monsters on the road. Most other country residents drive smaller more fuel efficient modes of transportation. Just sayin'

I dunno whether the relative lower cost of gasoline in the US is due to subsidizing, or because it is not taxed as heavily in Europe (US$3/gal tax in the Netherlands), but it is true that Europeans drive more efficient cars.

And they don't drive as much, period.

I was surprised to find highways in Portugal and Spain so well built and maintained, yet traffic was so light. And Portugal and Spain are not rich nations. Perhaps it's because of low traffic plus the lack of heavy trucks that kept their road in such good conditions.

 

[copyright1997reloaded]

I keep seeing statements about Russian oil production going down (and that it has dramatically affected the supply/demand equilibrium). But in doing some quick searches, all I can find is things like "might" and "likely to" and "should" (in terms of dramatic decreases).

Does anyone know of real production numbers (Russian), e.g. Jan 2022 to May 2022? I ask because just because we aren't buying it (or Europe, although they are), doesn't mean that somebody (e.g. India, China) isn't taking that supply. And if so, then it would lesson those countries demands for oil from other sources.

So, can anyone help with numbers?

 

[MichaelB]

I keep seeing statements about Russian oil production going down (and that it has dramatically affected the supply/demand equilibrium). But in doing some quick searches, all I can find is things like "might" and "likely to" and "should" (in terms of dramatic decreases).

Does anyone know of real production numbers (Russian), e.g. Jan 2022 to May 2022? I ask because just because we aren't buying it (or Europe, although they are), doesn't mean that somebody (e.g. India, China) isn't taking that supply. And if so, then it would lesson those countries demands for oil from other sources.

So, can anyone help with numbers?

Rory Johnston is an oil analyst with a subscription newsletter. His latest post dated yesterday is on Russia. There is a graph from the preview section (can’t upload) which shows about 1M bpd decline in production from the 2020 high, about 500k decline in crude exports, and about 750k bpd decline in refined products. See here https://www.commoditycontext.com/p/oils-russia-sized-hole-pt2?s=r

Matt Kline, an economist and expert in trade, says Russian imports of capital goods have fallen >50% and this will have an additional impact on Russian petroleum production by the end of the year.

The Twitter feed of both post occasional updated on this and are worth following. Both have added that Russia stopped providing data on petroleum production.

Javier Blas, an oil trader who writes a column for Bloomberg, says Russian oil is currently selling for a discount of about $30 per barrel. Traders are buying it for delivery to India and China, but this is complicated because there is not enough infrastructure to move the oil from Russia to the final destination. There was a recent very good Odd Lots podcast with Blas on this.

 

[Magus]

I never said it was not disruptive, it obviously is as many folks here are not used to the prices and simply cannot afford it.

My point is that a lot of other countries have had way higher prices than ours for a long time and seem to manage. Their cars typically get a lot better gas mileage.

As far as oil company subsidies, they must be getting some kind of benefits as folks in power are always talking about how the oil companies do not pay their fair share of taxes, we hear about it enough, probably not zero though.

This link is not naked, it is to corroborate the above paragraph regarding subsidies.

https://grist.org/accountability/follow-the-money-us-subsidizes-oil-and-gas-so-investors-never-lose/

Nearly all of these “subsidies” are accelerated depreciation, which is not a subsidy, simply a delayed tax payment. Unfortunately these articles and “studies” sound great to people who like to blame big corps for all the worlds problems and don’t understand even basic accounting like depreciation, even though gov makes way more money on oil than the oil companies. Furthermore, every industry has access to nearly all of them. The amount of real subsidies is extremely limited.

Comparing the US to Europeans with energy is silly for a few reasons - 1) we have way of it than do naturally 2) we pay more for other things (ex pharma) 3) the US is far, far more spread out than europe 4) it’s simply the pace of the increase that’s the issue not the fact it’s there 5) europe benefits from our lower energy costs as well, albeit less so than we do, as oil is used in most products globally

 

[almost there]

Also how are we transporting oil? Trucks & Trains?
Not sure how you can compare prices in the USA to countries that imports most of its oil.
"the United States is at the top of the list with 264 billion barrels of recoverable oil reserves"

 

[almost there]

You know, the country with the most oil in the world, should not be having a price problem.

https://www.globalpetrolprices.com/gasoline_prices/

 

[Koolau]

I never said it was not disruptive, it obviously is as many folks here are not used to the prices and simply cannot afford it.

My point is that a lot of other countries have had way higher prices than ours for a long time and seem to manage. Their cars typically get a lot better gas mileage.

As far as oil company subsidies, they must be getting some kind of benefits as folks in power are always talking about how the oil companies do not pay their fair share of taxes, we hear about it enough, probably not zero though.

This link is not naked, it is to corroborate the above paragraph regarding subsidies.

https://grist.org/accountability/follow-the-money-us-subsidizes-oil-and-gas-so-investors-never-lose/

It's not worth a food fight. You are welcome to your opinion.

But did you notice the title of the piece?

Follow the money: US subsidizes oil and gas so investors never lose

If you believe this article, have you gone out and bought O&G equities? You can't lose, right? All those subsidies mean you're gold. If you believe the article, I'm hoping you're ALL O&G now. My O&G is in my MFs and I have no idea what that amounts to. WHY? I know that O&G is very much an up-and-down business (subsidies or not.) YMMV

 

[Koolau]

You know, the country with the most oil in the world, should not be having a price problem.

https://www.globalpetrolprices.com/gasoline_prices/

You would think this. But oil prices are pretty much world oil prices. If we suddenly closed our borders to imports and exports of oil, I suppose internal production would be more important to country-wide prices.

A similar situation is gold price. Countries with high gold production don't sell gold to citizens at lower prices. Gold prices are set globally. Most commodities fall into this economic paradigm. YMMV

 

[Chuckanut]

You would think this. But oil prices are pretty much world oil prices. If we suddenly closed our borders to imports and exports of oil, I suppose internal production would be more important to country-wide prices.

+1

Oil and money are both fungible. Unless one wants to live in an isolated country with little international trade, we can't avoid that fact.

 

[Freedom56]

Imports from cargo ships are falling off a cliff. Not only is the backlog being cleared, but the level of traffic is dropping off rapidly. Container shipping costs are also tumbling. Lumber prices have now been cut in half at the wholesale level. Televisions and other electronics are selling at prices well below typical Black Friday specials. This is no doubt due to excess inventory. We are headed for a sharp deflationary spiral. It's a matter of time before the oil price bubble implodes as consumers cut back on driving.

 

[Magus]

Imports from cargo ships are falling off a cliff. Not only is the backlog being cleared, but the level of traffic is dropping off rapidly. Container shipping costs are also tumbling. Lumber prices have now been cut in half at the wholesale level. Televisions and other electronics are selling at prices well below typical Black Friday specials. This is no doubt due to excess inventory. We are headed for a sharp deflationary spiral. It's a matter of time before the oil price bubble implodes as consumers cut back on driving.

If we even get a whiff of deflation, the Fed will not only stop raising rates and QT, but reverse and crank up QE. If you want to bet on a deflationary spiral, go right ahead.

What you are seeing right now are retailers and the like adjusting inventory levels down. You know how hard it is to forecast demand in a normal time? It's 10x as hard right now. As soon as inventory levels are re-adjusted for what consumers are buying and not, the ones with current excess inventory will begin rising in price, some dramatically. It's the reason you can still find good deals at the grocery store on short dated items but not much else.

 

[Koolau]

Imports from cargo ships are falling off a cliff. Not only is the backlog being cleared, but the level of traffic is dropping off rapidly. Container shipping costs are also tumbling. Lumber prices have now been cut in half at the wholesale level. Televisions and other electronics are selling at prices well below typical Black Friday specials. This is no doubt due to excess inventory. We are headed for a sharp deflationary spiral. It's a matter of time before the oil price bubble implodes as consumers cut back on driving.

I'm waiting for that day in the far-off, hazy future when most cars are electric. Think of the bargains you might get on gasoline for your old ICE! Just another fantasy, as I'll not live to see that day - if it ever happens. YMMV

 

[Freedom56]

If we even get a whiff of deflation, the Fed will not only stop raising rates and QT, but reverse and crank up QE. If you want to bet on a deflationary spiral, go right ahead.

The stock market is already pricing a deflationary spiral. The FED can raise rates only so much and probably overshoot creating one of the best buying opportunities for fixed income since March 2020.

 

[Magus]

The stock market is already pricing a deflationary spiral. The FED can raise rates only so much and probably overshoot creating one of the best buying opportunities for fixed income since March 2020.

No they are not, or the S&P 500 would be down 50+%. I chat with investors every day as the core of my job with large institutions like Fidelity, T Rowe, Wellington etc and they are all worried about inflation, not deflation. I’ve had 60 investor calls and 20 analyst calls this quarter so far and not one has brought up deflation as a concern and virtually all of them are worried about inflation.

 

[Koolau]

The stock market is already pricing a deflationary spiral. The FED can raise rates only so much and probably overshoot creating one of the best buying opportunities for fixed income since March 2020.

Unfortunately, you never have a crystal ball when you need one. There are so many potential scenarios - and that's assuming something really bad doesn't happen (perish the thought Putin uses a tactical, a leader meets an unfortunate end, terrorists do what terrorists do, a good sized rock from outer space lands in the Northern Pacific - uh, let's make that the Southern Atlantic, etc.) Look what a Pandemic did and we're still digging out. YMMV

 

[Koolau]

No they are not, or the S&P 500 would be down 50+%. I chat with investors every day as the core of my job with large institutions like Fidelity, T Rowe, Wellington etc and they are all worried about inflation, not deflation. I’ve had 60 investor calls and 20 analyst calls this quarter so far and not one has brought up deflation as a concern and virtually all of them are worried about inflation.

Therefore, look out for deflation! ..........................

 

[NW-Bound]

Any day now, a ReWahoo asteroid will put all our worries to moot.

Until then, I've got to remember to drag my *ss to Arby's to try the Wagyu burger that other posters have been raving about. Once that asteroid's arrival is announced, nobody will be selling any Wagyu burger.

 

[Magus]

Therefore, look out for deflation! ..........................

Lol seriously though, if investors were worried about deflation, bond prices would be going thru the roof instead of down 15%+ for the year