The Choice Is Between Bad And Awful

On Wednesday, Armstrong Economics posted an article about inflation and recession.

The article reports:

Federal Reserve Bank of Minneapolis President Neel Kashkari has advised against anticipating near-term rate cuts. While speaking to the Financial Times, the Fed president stated that people would simply prefer a recession to continued inflation.

“I have learned that the American people—and maybe people in Europe equally—really hate high inflation. I mean, really viscerally hate high inflation,” he told the Financial Times’ The Economics Show podcast. Kashkari is speaking as if we are not already in a recession. It is not difficult to understand the “visceral” hatred people around the world feel toward rising prices. The effects of inflation are felt with every purchase, causing the average person to adjust their entire lifestyle.

The article concludes:

Real prices have far surpassed anything they calculate in CPI. Everyone understands that prices have risen far more than the arbitrary number the Fed provides us. Taxes are continually increasing for everyone in every tax bracket. The government not only adds to inflationary issues with their spending but then expects their citizens to foot a portion of the bill with taxes, which will simply never be enough.

Then we have Washington telling the masses to blame corporations for price gouging while raising their taxes and making it increasingly difficult to conduct business and maintain a large workforce. It is not that the people would prefer to be in a recession, the real issue is that countless people are entering survival mode. People everywhere want to hold onto whatever they may have out of fear for the future, but they are unable even to hoard as real prices now demand they hand over whatever they have to maintain their lives.

In a recession, consumer spending drops, and people lose their jobs. A service economy such as the one America currently has is more vulnerable to recession than a manufacturing economy. A recession creates hardship for working families.Inflation impacts both working families and retirees. Either one is a bad deal. The most practical way to deal with inflation in America would be to cut government spending and to resume domestic oil production. Both of those things would help revive a miserable economy.

This Could Be Interesting

One of the things that allows Russia to continue its war against Ukraine is the high price of oil. The sale of Russian oil finances that war. When America was energy independent, the price of oil was lower, and the Russian economy was struggling. Since the Biden administration declared war on American oil, the price of oil internationally has skyrocketed. That has been bad news for consumers, but good news may be on the way.

On Thursday, Zero Hedge reported the following:

Confirming a move which had been widely expected after the internal acrimony at the last OPEC+ meeting, moments ago Angola – also known as China’s gas station in Africa – announced it was leaving OPEC, the country’s news agency ANGOP reported on Thursday, quoting the African producer’s oil minister Diamantino de Azevedo.

The decision was taken at a meeting of the Council of Ministers, led by the President of the Republic, João Lourenço, the news agency noted. Jornal de Angola also reported the news.

As OilPrice notes, Angola and another African OPEC member, Nigeria, had a spat with the other cartel members before the latest meeting regarding their oil production quotas.

The chart below shows the impact of announcement on oil prices:

 

This could be good news for consumers. It also might result in peace negotiations in Ukraine if the trend continues.

The article concludes:

However, it seems now that Angola doesn’t see an OPEC membership as beneficial anymore after the recent spats over its production quota.  

Angola, which joined OPEC in 2007, holds untapped oil and gas resources estimated at 9 billion barrels of proven crude oil reserves and 11 trillion cubic feet of proven natural gas reserves.  

The news sent oil, which had caught a bid in recent days on fears about a protracted Red Sea blockage, sharply lower and back to Tuesday levels.

Stay tuned. This could change rapidly depending on the freedom of transport in the Red Sea.

The Coming Increase In Gasoline Prices

On Monday, Ed Morrissey at Hot Air reported that the Organization of the Petroleum Exporting Countries (OPEC) is planning a major decrease in oil production in order to get the price of oil back to $100 a barrel.

The article quotes a CNBC article:

An influential alliance of some of the world’s most powerful oil producers is reportedly considering their largest output cut since the start of the coronavirus pandemic this week, a historic move that energy analysts say could push oil prices back toward triple digits.

OPEC and non-OPEC producers, a group often referred to as OPEC+, will meet in Vienna, Austria, on Wednesday to decide on the next phase of production policy.

The oil cartel and its allies are considering an output cut of more than a million barrels per day, according to OPEC+ sources who spoke to Reuters.

“The OPEC ministers are not going to come to Austria for the first time in two years to do nothing. So there’s going to be a cut of some historic kind,” Dan Pickering, CIO of Pickering Energy Partners, said, referring to the group’s first in-person meeting since 2020.

This is the cost of America giving up its energy dependence. I can’t emphasize often enough that we were energy independent under President Trump and were able to help the American economy and the American consumer by the domestic production of oil. The election of Joe Biden changed all of that. Even if the Republicans take Congress this year and a Republican becomes President in 2024, it will take a while to bring American energy back to what it was under President Trump. Hopefully the American economy can hold out that long without collapsing.

The article concludes:

Of course, Biden could put the US on a footing that would allow us to dictate not just production levels but also heavily influence oil prices to deny Vladimir Putin his excess revenue stream. Rather than choke off exploration and extraction, Biden could cancel his EO 13990 and reverse his lease-sales policies to encourage more investment in oil and natural gas production. That would unleash massive new resources for both domestic use and export, and even the initial steps would shock oil futures markets into accounting for sudden new production levels from the US. Biden won’t do it, however, because he’s more in thrall of his progressive-environmental Left than he is focused on economic and strategic national-security concerns.

So once again, we’ll be dancing to any tune that OPEC+ plays. It’s yet another reminder of Joe Biden’s 1970s revival in all the wrong ways.

I could have dealt with leisure suits and platform shoes coming back–but I can’t deal with gas lines and ultra-expensive gasoline again.

I Guess That Didn’t Go Too Well

On Saturday, The Conservative Treehouse posted an article about President Biden’s recent visit to Saudi Arabia. It was not a rave review. The article pointed out that although the American media covers for the frailty and obvious mental challenges President Biden exhibits, the international press does not. America’s enemies also take note of the obvious physical (and mental) weakness of our President.

The article includes the following:

From MbS (Mohammed bin Salman Al Saud) as interpreted: “We agree on many things, but we differ on a few others. Every country has its own culture and circumstances. I respect yours, you respect mine. Do not impose your culture on us. Do not impose your beliefs on us.” … “We agree we need to do more for climate change, but you guys are doing it wrong by favoring certain energy sources over others. The world needs energy security. We need all energy sources including oil & gas. We are doing our part on both fronts: climate change & energy security.” … “The stage of a country’s economic & social development must be considered in climate change negotiations.” … “We are increasing our production capacity to 13 million barrels per day (from 12 mb/d), but that is it. We cannot do more.”  The message here is: You guys do your part and invest more if you want to avoid energy crises, recessions, and unemployment. Do NOT blame us!

Remember, America was energy independent under President Trump. Inflation was under control because the energy industry was earning money and paying taxes to the government–the government was not borrowing large amounts of money not backed by anything. Bringing back American energy independence would do a lot toward stabilizing our economy–bringing in tax revenue and slowing inflation.

Just for the record, no one is entirely sure exactly who called for the murder of Jamal Ahmad Khashoggi, and I am not saying the murder was justified. However, it should be noted that Khashoggi did have ties to the Muslim Brotherhood and might well have been plotting to overthrow the rule of the House of Saud in Saudi Arabia. That is a possibility that needs to be considered when discussing his murder.

A Very Mixed Blessing

CNBC posted an article yesterday (updated today) that because OPEC has not been able to reach an agreement about oil prices with its allies (led by Russia), Saudi Arabia has cut its oil prices and increased its production. A price war is expected to follow. This is great news for consumers, but horrible news for American oil production.

The article reports:

U.S. West Texas Intermediate (WTI) crude and international benchmark Brent crude are both pacing for their worst day since 1991.

WTI plunged 18%, or $7.36, to trade at $33.92 per barrel. WTI is on pace for its second worst day on record. International benchmark Brent crude was down $8.44, or 18.7%, to trade at $36.80 per barrel. Earlier in the session WTI dropped to $30 while Brent traded as low as $31.02, both of which are the lowest levels since Feb. 2016. 

“This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction,” Again Capital’s John Kilduff said. “The Saudis are the lowest cost producer by far. There is a reckoning ahead for all other producers, especially those companies operating in the U.S shale patch.”

On Saturday, Saudi Arabia announced massive discounts to its official selling prices for April, and the nation is reportedly preparing to increase its production above the 10 million barrel per day mark, according to a Reuters report. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.

The article concludes:

“$20 oil in 2020 is coming,” Ali Khedery, formerly Exxon’s senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures, wrote Sunday on Twitter. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc – may prove existential 1-2 punch when paired with COVID19.”

But others, including Eurasia Group, believe that Saudi Arabia and Russia will eventually come to an agreement.

“The most likely outcome of the failure of the Vienna talks is a limited oil price war before the two sides agree on a new deal,” analysts led by Ayham Kamel said in a note to clients Sunday. The firm puts the chances of an eventual agreement at 60%.

Vital Knowledge founder Adam Crisafulli said Sunday that oil “has become a bigger problem for markets than the coronavirus,” but also said that he does not foresee prices falling to the Jan. 2016 lows.

“Saudi Arabia can’t tolerate an oil depression – the country’s fiscal breakeven oil prices remain very high, Saudi Aramco is now a public company, and MBS’s grip on power isn’t yet absolute. As a result, the [government] won’t be so cavalier in sending oil back into the $30s (or even lower),” he said in a note to clients Sunday.

OPEC has played this game before. In the 1970’s oil crisis, OPEC boycotted America because of our support of Israel. When American energy companies responded by drilling wells to meet the need, OPEC dropped the boycott and lowered the price to put those companies out of business. I suspect there may be an attempt to do that again, but I am not sure we are as vulnerable as we were then. If America continues on the path to energy independence, our oil prices will be less vulnerable to foreign manipulation. We may have to pay a little more than the price the Saudis will drop to for our oil, but it would be worth it in the long run. Hopefully we have people currently in charge that are looking long term rather than short term.

Propping Up A Dictator

One America News is reporting today that two Russian air force planes landed in Venezuela’s main airport on Saturday carrying a Russian defense official and nearly 100 troops. This is reported by a local journalist.

The article reports:

Reporter Javier Mayorca wrote on Twitter on Saturday that the first plane carried Vasily Tonkoshkurov, chief of staff of the ground forces, adding that the second was a cargo plane carrying 35 tonnes of material.

An Ilyushin IL-62 passenger jet and an Antonov AN-124 military cargo plane left for Caracas on Friday from Russian military airport Chkalovsky, stopping along the way in Syria, according to flight-tracking website Flightradar24.

The cargo plane left Caracas on Sunday afternoon, according to Adsbexchange, another flight-tracking site.

It sounds as if the Russians are attempting to duplicate what they did in Cuba many years ago, support an unpopular dictator who will be a thorn in the side of America. The Russians have another reason to want to keep Venezuela indirectly under their control.

On March 22nd The Miami Herald reported:

Cuba would have to spend nearly $2 billion a year to meet its domestic oil needs if Venezuela’s National Assembly and interim president Juan Guaidó manage to stop deliveries to the Caribbean island.

“Cuba’s demand for oil is about 130,000 barrels per day, and Cuba produces about 50,000 barrels per day, which means a deficit of about 80,000 barrels per day,” said Jorge Piñón, director of the Latin American Energy Program at the University of Texas at Austin.

Piñón estimates that Cuba has fuel reserves for about 45 days. But the end of deliveries by Venezuela’s PDVSA oil company would force the government to spend nearly $5.2 million per day at the market price of $65 per barrel for the 80,000 barrels per day it would need to import to meet demand.

By the end of one year, that would add up to nearly $2 billion for an economy that economists agree has not reached 2 percent annual growth in recent years and has probably experienced a recession.

The National Assembly, controlled by the opposition, recently ordered a suspension of crude shipments to Cuba, which started under an agreement to exchange oil for medical services negotiated by the late Fidel Castro and Hugo Chávez.

PDVSA now ships an estimated 40,000 to 50,000 barrels per day to Cuba, not quite half of what the oil company sent before it spiraled into an unprecedented crisis under the Nicolás Maduro regime.

There is also another aspect of Venezuela’s oil shipments.

In November 2013, I reported:

On Friday the Associated Press reported that PDVSA, the government-owned oil producer in Venezuela, seized control of two oil rigs owned by a unit of Houston-based Superior Energy Services. The company had shut down the rigs because the Venezuela oil monopoly was behind on payments.

Nicolas Maduro, the successor to Hugo Chavez, has not taken over any industries during the six months he has been President of Venezuela. This is the first move he has made in that direction. When Hugo Chavez began taking over industries, one news analyst observed that it would be difficult for him to keep those industries running at their profit levels without the knowledge of the companies that owned them. The seizure of these two rigs, which are repair rigs, is an illustration of that point.

Like it or not, free enterprise generates more wealth for more people than socialism.

It is a safe bet that oil production is only a fraction of what it was before Maduro took over the oil industry. That adds to the financial woes of Venezuela and will also have an impact of Cuba.

We Have Seen This Play Before

Bloomberg Business is reporting today that the Organization of the Petroleum Exporting Countries (OPEC) may boost oil production dramatically after the sanctions are lifted on Iran.

The article reports:

The global oil market is already in surplus by about 3 million barrels a day, with Saudi Arabia and Iraq responsible for OPEC’s oversupply in the past six months, Iran’s state-run Islamic Republic News Agency reported Sunday, citing Mehdi Asali. Iran can boost output by 500,000 barrels a day within one week after sanctions are lifted, Oil Minister Bijan Namdar Zanganeh said earlier this month.

…Iran made a “big mistake” when it backed OPEC’s decision in December 2011 to discard individual production quotas, Asali said. That allowed Saudi Arabia, Kuwait and other members to take over Iran’s share which was diminishing because of sanctions, he said.

…Brent oil futures closed at $49.19 a barrel on Friday, down 14 percent for this year.

We have seen this play before. There is an oil price at which fracking, a major part of American oil and natural gas production, is no longer profitable. To restart a fracking operation after it has been suspended is expensive and cumbersome. The easiest way to prevent America from becoming energy independent is to drop the price of oil as America begins to develop her oil and natural gas resources. This severely impacts the development–American businessmen are in business to make money. If fracking is not profitable, they will not invest the money to do it. OPEC would very much like to keep America dependent on their oil. Our dependency on OPEC oil has a tremendous impact on our diplomatic policy in the Middle East. We give money to and support in other ways countries whose basic ideas and values are in total conflict with our own. It would be very nice to be energy independent and be able to make decisions on international matters according to our principles–not our dependence on oil.

 

Are You Enjoying The Current Price Of Gasoline?

On Sunday, Stephen Moore posted an article at The Daily Signal about the recent decline in gasoline prices. The article reminds us that in June, oil reached a peak price of $103 a barrel. Since then, the price has dropped 25 percent. American motorists are seeing the results of that drop in gasoline prices at the pump that have dropped below $3.00 per gallon. At their present levels, gasoline prices are saving American consumers and businesses $200 billion a year.

The article reports:

Oil prices are falling because of changes in world supply and world demand. Demand has slowed because Europe is an economic wreck. But since 2008 the U.S. has increased our domestic supply by a gigantic 50 percent. This is a result of the astounding shale oil and gas revolution made possible by made-in-America technologies like hydraulic fracturing and horizontal drilling.  Already thanks to these inventions, the U.S. has become the number one producer of natural gas. But oil production in states like Oklahoma, Texas and North Dakota has doubled in just six years.

Without this energy blitz, the U.S. economy would barely have recovered from the recession of 2008-09. From the beginning of 2008 through the end of 2013 the oil and gas extraction industry created more than 100,000 jobs while the overall job market shrank by 970,000.

President Obama, you didn’t build this recovery (such as it is)–it happened in spite of you! The energy blitz in America is breaking the back of OPEC. They can no longer blackmail western countries with threats of cutting off their oil supply.

The article further reports:

Yet the political class still doesn’t get it. As recently as 2012 President Obama declared that “the problem is we use more than 20 percent of the world’s oil and we only have 2 percent of the world’s proven oil reserves.”  Then he continued with his Malthusian nonsense,  “Even if we drilled every square inch of this country right now, we’d still have to rely disproportionately on other countries for their oil.” Apparently, neither he nor his fact checkers have ever been to Texas or North Dakota.  And we don’t have 2 percent of the world’s oil. Including estimates of onshore and offshore resources not yet officially “discovered”, we have ten times more than the stat quoted by the president–resources sufficient to supply hundreds of years of oil and gas.

If the President and his Democrat allies would get out of the way, the American economy would recover. Please remember that when you vote next week.