Wednesday, February 13, 2013

Brent-Up Demand


Click to enlarge.

February 13, 2013
Econbrowser: Prices of gasoline and crude oil

But an increase in production in Canada and the central U.S. combined with a decrease in U.S. consumption has led to a surplus of oil in the central U.S.

$100 oil, less consumption, and a surplus? Bernanke's a miracle worker! That's why we pay him the big bucks!

I appear to have opened the sarcasm gates yet again. Why stop now? The Onion wrote the following 12 years ago.

January 17, 2001
Bush: 'Our Long National Nightmare Of Peace And Prosperity Is Finally Over'

WASHINGTON, DC–Mere days from assuming the presidency and closing the door on eight years of Bill Clinton, president-elect George W. Bush assured the nation in a televised address Tuesday that "our long national nightmare of peace and prosperity is finally over."

Mission accomplished!

Source Data:
St. Louis Fed: Brent / WTI

20 comments:

Fritz_O said...

"$100 oil, less consumption, and a surplus? Bernanke's a miracle worker!"

Do you know what followed the oil shocks of 1972 and 1979?

Do you know what followed the botched monetary policy response to these shocks?

HINT: Stagflation!

Even though the eventual Volcker shock treatment of sharply raising rates was brutal, it worked. Latin America be damned.

There truly is nothing like Bernanke "fueling" instability on a global scale.

Fatboy said...

But Bernanke's experimental QE's/LSAP's has nothing to do with food and fuel prices increasing, in this case, though demand is down and supply is up. Only tin foil hat wearing malcontents draw the distinction.

Williams of the SF Fed has even graced us with a paper, well typed and edited with nice logo's on each page, showing there is no connection.

Just because Mr. Williams, (he was a pretty good songwriter before becoming an economist, string of #1 hits),chose to only look at the price actions of commodities on the day of the Fed buys means nothing.

Troy said...

Supply may be up but gasoline is a segmented market -- supply is gated by an underdeveloped pipeline system.

http://www.eurasiareview.com/14022013-planned-changes-to-u-s-crude-oil-pipeline-infrastructure-should-relieve-cushing-bottleneck-analysis/

In 2011 California produced 38% of its consumption, imported from Alaska 12%, and imported from foreign sources the remainder[1]

Only tin foil hat wearing malcontents draw the distinction.

Sarcasm-as-analysis has a way of producing circular thinking.

Consumers have a pot of money -- their disposable incomes -- to spend each month, and market participants provide the goods and services that are purchased.

http://research.stlouisfed.org/fred2/graph/?g=fAO shows total wages & personal incomes are both up 10%+ since the end of the recession.

Yes, without the Fed intervention things would have collapsed further 2011-2012 and Fed intervention is what's keeping the train moving forward now.

But this place was highly inflationary in the 2000s, as the chart showed, because we have an economy of rent-seekers picking at an underpowered populace not an actual honest one like in the textbooks.

TJandTheBear said...

LOVE the title. :-)

Troy said...

http://research.stlouisfed.org/fred2/graph/?g=fBt

All #s set to 2006-2-01 = 100 baseline

blue is hourly wage level
red is housing rents
green is gasoline CPI

The story of 1985 ~ 2000 was non-OPEC peaking, basically. We were awash in oil, Alaska was peaking and had nobody to sell to but the west coast and Japan.

But now China is entering the game, and they want their piece of the pie. AND we're giving them a lot of our currency to buy it up.

http://2.bp.blogspot.com/_D9-JNTtRKgs/TT7MVywJGWI/AAAAAAAABfo/rReyFaKwYq8/s1600/Screen+shot+2011-01-25+at+8.11.58+AM.png

We may be flat since 2000, but China sure as heck isn't. And their money is as good as ours, it better be. because it *is* ours!

Troy said...

http://www.businessinsider.com/walmart-struggles-with-payroll-taxes-2013-2

vs my FRED chart above, re-set to 2000-now, 2000 @ 100 index level:

http://research.stlouisfed.org/fred2/graph/?g=fCl

wages, blue, up ~50% since 2000.
housing rents, red, up 50% (Georgists call this 'The All-Devouring Rent')
gasoline, green, up ~150%
healthcare, orange, up 60%.

removing gasoline and adding payroll jobs (yellow) and age 25-54 population (green):

http://research.stlouisfed.org/fred2/graph/?g=fCm

shows prime-age population is topped out (!) and the job level has returned to the 'full employment' of 2000 more or less, even though there's only ~4% more jobs now compared to 2000.

Fatboy said...

Troy said: "Only tin foil hat wearing malcontents draw the distinction.

Sarcasm-as-analysis has a way of producing circular thinking."

and: "http://research.stlouisfed.org/fred2/graph/?g=fAO shows total wages & personal incomes are both up 10%+ since the end of the recession.

"Yes, without the Fed intervention things would have collapsed further 2011-2012 and Fed intervention is what's keeping the train moving forward now."

Circular thinking? Look in the mirror. Wages up 10%? Your selective data retrieval is circular thinking. You grab a time frame when 600k jobs were lost and compare it to a time where barely enough jobs are being created to absorb new entrants and many if not most of those are part time jobs. Circular thinking? Wage and wealth gains for the top 1% since QE began are 121%

W/o the Fed actions...? And you accuse others of "circular thinking?" Prove to me that we are better off now, 2013, with the Fed's action than without it. You can't because you are practicing circular thinking. You mimic George W. Bush when he asked, "Prove to me Sadaam didnt have WMD"S, working on a nuclear bomb, etc."

I'm dumbfounded that you accuse me of circular thinking then follow up with selective data points and talking points that frame arguments in an unprovable way. You are the one that is indeed practicing circular thinking

Troy said...

Prove to me that we are better off now, 2013, with the Fed's action than without it.

That's just it, we have to operate in our mental models when talking about counter-factuals.

Bush can defend his decision to take out Saddam by asserting that things would be worse now with a Saddam out of his sanctions box and a major actor in the mideast with Brent in the 100s again.

And maybe he'd be right!

What I was reacting to above was the 'hurf durf Bernanke bad' stuff.

I believe our present economy is screwed at a very deep level. We've structured things to pull TRILLIONS out of the middle class each year and we're scrambling to back-fill this with government cheese and private debt flim-flam.

It's not a selective data point that wages are up compared to 2009, though.

http://research.stlouisfed.org/fred2/graph/?g=fE4

Blue is payroll jobs and red is average wage. Up!

But let's cut the PAYEMS graph off at 2009 since that's the issue here.

http://research.stlouisfed.org/fred2/graph/?g=fE5

Let's switch to YOY and add consumer debt take-on:

http://research.stlouisfed.org/fred2/graph/?g=fE6

which shows the correlation between post-dotcom crash job recovery (blue) and annual consumer debt take-on (red).

It's my thesis that the red was powering the blue!

Lest we forget, this is what the consumer debt spike looks in reality:

http://research.stlouisfed.org/fred2/series/CMDEBT

And the leverage ratio:

http://research.stlouisfed.org/fred2/graph/?g=fE8

showing we are only about a third of the way through the drawdown back to 1990s levels of consumer debt leverage.

The system was living on that $1T+/yr credit extension 2002-2007. Losing that inflow completely would result in a continuing cross-default collapse, and THAT was the future this nation was heading towards in late 2008 and early 2009.

I'm not saying the status quo is any good, it's not.

But it's better than where things would be now had the PtB just stood aside, 2008-now.

Our policy mistakes took 30 years to bake, it's going to take 30 years to fix things, too.

Foremost, we need to get on the same page as to what needs to be fixed. Our trade deficit is one such thing, and to fix that we need a weaker dollar, and one way to weaken the dollar is to run the presses . . .

TJandTheBear said...

But it's better than where things would be now had the PtB just stood aside, 2008-now.

YOUR opinion. Had the PtB stood aside the dead weight in the economy would've been quickly cleared and we'd have truly organic, sustainable growth occurring. Instead, we're sacrificing everything to give the appearance of normalcy until the day -- not so far off -- when the wheels come off entirely.

Fritz_O said...

With regards to the bailouts, I'm with TJ.

TARP did not constitute the right stuff to ensure the future benefits we were all sold (ATMs would go dark!)

The insolvency of the banks should have proceeded via normal channels of bankruptcy and haircuts to shareholders and bondholders.

It would have been painful to those involved but that's the price they should have paid for excessive accumulations of mortgage debt backed obligations that had no way of being paid back and the sellers knew it.

And we'd be left with a citizenship that would have to think twice before deciding where to deposit their money. That's how it should be, IMO.

Troy said...

truly organic, sustainable growth

these are words that sound good but don't really mean anything.

As a point of fact, we don't really need "growth" at all any more to make things better here.

http://research.stlouisfed.org/fred2/graph/?g=fFr

Shows per-capita GDP is over $40,000.

So much of our incomes are being siphoned away via rents that we forget how little it takes to live a good life here.

when the wheels come off entirely.

It's difficult for me to see the future. Like in Japan, the money we owe each other is just a construct.

I don't think the Japanese holders of debt are going to be repaid their principal, and I think the US is following this same path.

For every debtor there is a creditor. Creditors have been getting pretty fat over the decades, and a Systemic Reset is in order.

The insolvency of the banks should have proceeded via normal channels of bankruptcy and haircuts to shareholders and bondholders.

Thank you Secretary Mellon! Following that sober advice was why Hoover was a one-term President, and the House was Democratic for 50 years.

To risk an analogy here, while it's hard fixing a plane in flight, that's a lot better scenario than allowing the damn thing to crash first.

We have a very corrupt economy, but the problem is the corrupters control the media, since money buys things like media and message producers quite easily, and the one thing that people with money have is . . . money!

Fritz_O said...

"Thank you Secretary Mellon! Following that sober advice was why Hoover was a one-term President, and the House was Democratic for 50 years."

At the time, the most prominent opposition to Mellon was Keynes. And his approach won the day during the Depression. Let's explore some thoughts on winners and losers.

Keynes argued that pumping up demand through .gov spending and increasing the money supply would ensure a level of demand sufficient to maintain full employment. He also conceded that such intervention carries a certain risk because too much .gov spending could result in inflation. So, the trick, in his mind (and in the flawed mind-sets of todays central bankers) is to achieve just enough stimulus to reach full employment but not so much as to set off inflation.

The apparent contribution of all this "fine-tuning" was an end to the nightmare of the Depression and eCONomic prosperity during the 1950-73 Golden Era led by Kennedy's Council of ECONomic Advisors.

With the rear-view mirror as our guide, the shock of stagflation during the 70's, the dotCON bust, and the housing bust/bailouts now makes the new era of eCONomics paved by Keynes et. al. look like a bad joke.

Troy said...

Things are a bit different now, though.

Our trade deficit is a monster, and half of it is in oil.

Price is the main inducement to conservation. Should Americans wake up to find another 0 in their bank balances, we'd go crazy burning up all the oil again, until Brent had another 0 on it too.

Rent-seekers in land also have another whip-hand here.

http://research.stlouisfed.org/fred2/graph/?g=fFy

Blue is wages (1970=100). Red is rents (same index).

Few people, if anyone really, understand the power of that correlation.

And its perniciousness.

This is where I part company with Krugman et al. Big-ass inflation is going to be very good for those who placed their chips on the right squares, and not really help anyone in the end.

If I were running things I'd aim for Stasis and Rationalization. Stop wasting money on BS and start making peoples' lives better with the immense capital and labor resources we have at hand.

An interesting artifact in that above graph though is that in the high-inflationary 1970s, housing lagged the rising incomes a bit as food & fuel took the lion's share of wage gains.

I don't remember my parents' rents going up at all in the 1970s.

This lag is more visible zooming in to 1970-1990:

http://research.stlouisfed.org/fred2/graph/?g=fFB

Maybe the same thing will happen here. Higher import costs and food costs will come out of rents.

The economy is complicated with many moving pieces! One must be careful to avoid though-terminating cliches about it.

Troy said...

* thought-terminating cliches!

TJandTheBear said...

Troy, much of what you state I wholly agree with.

However, "organic, sustainable growth" consists of real, non-government jobs creating real products & services. Instead, we have an economy where that per-capita GDP is an illusion facilitated by massive government overspending & Fed printing.

GDP is such a phony, distorted number any more there's just no point in using it.

Fritz_O said...

"An interesting artifact in that above graph though is that in the high-inflationary 1970s, housing lagged the rising incomes a bit as food & fuel took the lion's share of wage gains."

This makes me think back to the 2003-2006 timeframe.

Let's say someone drives 1250 mi/mo and gas costs ~$1.09/gal as it did in 2001. At ~20mpg they use ~$68.00/mo for gas. By 2006, at ~$2.50/gal they are using ~$88.00 more each month for gas.

Let's say they have a $200K 30yr mortgage @ 3.9% and they make monthly payments of ~$935.00. Now, let's say interest rates go up to 4.7% and the same loan costs ~$1037.00/mo to service. The difference is ~$102.00 which is very nearly the same as the increase in gas prices during the period 2003-2006.

Wouldn't that 0.8% rise in interest rates have a tightening effect on mortgage origination? Of course it would.

So why didn't the spike in gas prices from 2003-2006 have the same curbing effect on the housing market? Rising fuel costs were, in essence, a measure of tightening on the consumer market. Can HELOC's explain the way consumers seemed to ignore rising fuel prices during the period?

Troy said...

that per-capita GDP is an illusion facilitated by massive government overspending & Fed printing.

it's a measure of what we can produce, yes.

My argument is that we actually don't have to "produce" as much, if we all didn't have to yield so much to the 5% who own everything.

I don't want any more "growth", I want rebalancing!

So why didn't the spike in gas prices from 2003-2006 have the same curbing effect on the housing market?

The gas pump deals in tens and twenties while the housing market deals in hundreds of thousands and millions.

Plus prices actually peaked mid-2005, LOL.

http://research.stlouisfed.org/fred2/graph/?g=fHb

blue is Case-Shiller, red is pump prices.

If you ask me, the blue was driving the red up, LOL.

People buying bigger cars, taking more trips with all the bubble money 2003-2006.

Plus our expanding trade deficit allowing China and India to build up their middle class consumer class incrementally, putting additional demand on global supply.

Fritz_O said...

"If you ask me, the blue was driving the red up, LOL.

People buying bigger cars, taking more trips with all the bubble money 2003-2006."


Agreed on B driving R and a few more reasons:

1.) Huge number of small business contractor's servicing new and existing home owners. A large number of these businesses closed up starting in late 2006. My business is self-storage and move-outs skyrocketed in Sept. '06, and many of these were small business commercial accounts.

2.) Although not gasoline but diesel; huge numbers of dump trucks and cement mixers supplying new home const., and CONcast/Warner/TeleCON/HVAC utility trucks supplying same. This crashed in 2007.

3.) Huge numbers of Catepillar heavy equipment bulldozing healthy trees everywhere. Also crashed in 2007.


"I don't want any more "growth", I want rebalancing!"

You and me both. And if you ask me, we're both dreaming. sigh

Troy said...

http://research.stlouisfed.org/fred2/graph/?g=fHz

Red is YOY homedebtor growth, "the influx".

Black is Brent $/bbl, "the efflux"

Green is YOY .gov debt take-on, "the reflux"

Stagflationary Mark said...

Hey Everyone!

Sorry for not posting much lately. I managed to go 5 days without even turning on my computer. Go figure.

I thought I was back last week. Not quite there yet it seems.

P.S. No spam comments to delete? Amazing! ;)