Inflation Thread

[okeefe4prez]

A lot of the problem with interpreting the refining data is that there's no clear cut method for determining what's included in capacity. There's a lot of capacity out there right now not being considered because it got shut down during the germ and hasn't been restarted yet. That capacity can go online quickly relative to new construction, and it will once price and demand cross each other.

It's the same thing with steel. During covid tons of mills and service centers shut down due to demand and the price when ballistic. The AMM for HRCQ coils shot up to record levels over a dollar almost instantly, and now that covid shutdown plants have slowly started to come back online the AMM has gradually slid back to $.57 as of this morning. The gradual slide is because (like gasoline/diesel), most of the steel milling capacity is owned by 3 giants. They know the market isn't sustainable, but they're going to get as much margin out of it as they can for as long as they can. The result is that steel is way down from where it was during the germ hangover, but it's going to be more expensive than it was prior for a fairly long time. The same thing will happen with gas/diesel.

There's a "new normal" being established, which is common for every commodity at varying points across history for varying reasons. It's going to change the economy, but it's not going to tank it.

What people need to be watching more than fuel is agriculture. The stuff going on across the pond is going to do some seriously funky shit to our economy for a long time. Luckily the US is waaaaay agriculturally secure and will be for as long as anyone here will be alive (even with climate change), but the rest of the world is going to be in serious trouble with the Russo-Ukraine issues and that will affect our economy more than fuel. For whatever one thinks of it's downfalls, capitalism has driven HUGE advances in ag technology and efficiencies, and we are going to be very, very thankful for that in the next 5 years. People can cry all they want about the US being the new major oil power, but being the agricultural leviathan we are is much more important to our stability.

I totally agree on ag, but you have to remember that the entire ag infrastructure runs on diesel fuel. And packaging relies heavily on oil to make plastics.

Refineries are way more complex than steel production. You shut a refinery off for two years and you are going to basically have to rebuild the whole damned thing. The ones that got closed were on the cusp of needing major rehabs anyway. Oil is corrosive as all hell and folks who were staring down the barrel of a rehab just said "F it" because they are expensive as hell. Plus you have to get a bunch of knucklescraper government fucks to give you all kinds of permits to run a refinery because they are really dirty and there are a bunch of ideologues at each level of government who are vehemently opposed to oil who are going to be a pain in the balls to deal with.

 

[Fryowa]

Refineries are way more complex than steel production. You shut a refinery off for two years and you are going to basically have to rebuild the whole damned thing.

Steel is the same way, to be honest. Or so everyone was told.

When demand started dropping because of price, the steel mills that said they'd take a year or better to get back running were up in a matter of months. Those big guys know that demand dropping is a slippery slope and it's not something they can turn on or off with a switch like they can supply or price. There's too many variables. The steel mills were flush with cash and threw money at the problem and got it done. Oil refiners have more money now than they've ever had.

Dollars for donuts fuel will be the same way. When this $5 gas nut cracks it's gonna go off the rails in a hurry to the downside and all of a sudden these guys will be online in a few months putting new supply out there and stabilizing prices in the middle.

Remember, analysts in an market don't generally know shit about technicalities and what's truly possible in a physical, can we do it? sense. They rely on the dudes with the wrenches and screwdrivers to tell them what capacity is, and those folks have no incentive to be truthful.

 

[okeefe4prez]

Steel is the same way, to be honest. Or so everyone was told.

When demand started dropping because of price, the steel mills that said they'd take a year or better to get back running were up in a matter of months. Those big guys know that demand dropping is a slippery slope and it's not something they can turn on or off with a switch like they can supply or price. There's too many variables. The steel mills were flush with cash and threw money at the problem and got it done. Oil refiners have more money now than they've ever had.

Dollars for donuts fuel will be the same way. When this $5 gas nut cracks it's gonna go off the rails in a hurry to the downside and all of a sudden these guys will be online in a few months putting new supply out there and stabilizing prices in the middle.

Remember, analysts in an market don't generally know shit about technicalities and what's truly possible in a physical, can we do it? sense. They rely on the dudes with the wrenches and screwdrivers to tell them what capacity is, and those folks have no incentive to be truthful.

The issue with this line of thinking is that not all refineries are owned by integrated majors or pureplay refining companies. Those are the guys flush with cash right now.

LyondellBasel, which is a behemoth plastic company, owns one in Houston that is the result of some predecessor merger or corporate reorg. They've tried to sell it and are saying it is coming offline in 2023 or sooner if they have a major system failure. Premature Closure Of Houston Refinery Could Worsen The Fuel Crunch | OilPrice.com

The one in Philly that had that explosion a few years back is not going to be able to come back online and they are saying demolition will take 4 years, but again, that is not owned by an oil major or pure refiner like Valero or Phillips, so they aren't flush with cash to fix it. Plus, Philly is a suboptimal place for a refinery. Philadelphia Energy Solutions refinery demolition to take four years, new owner Hilco says | StateImpact Pennsylvania (npr.org)

I'm not going to discount the complexity of a steel mill, but a modern oil refinery is on another level of complexity due to the volatility of inputs and outputs. Again, steel is a dangerous business (my neighbor's uncle died in the Gary mill in the '90's), but the level of danger in a refinery is exponentially higher.

Crude supply will quickly come back online, but refinery capacity is much harder to bring online. And you have to remember, a cat 4 or cat 5 hurricane that hits Louisiana or near Galveston absolutely destroys refinery capacity because they have to shut down and it takes anywhere from a week to over a month to come back online, and that is for facilities that are in prime operating condition.

 

[HawkGold]

but you have to remember that the entire ag infrastructure runs on diesel fuel.

My ag drone disagrees

 

[okeefe4prez]

My ag drone disagrees

Okay, only 99.9999987 percent of the ag industry runs on diesel. Or do you take corn to market in a Nissan Leaf?

 

[Northside Hawk]

North is a closet Badger...

@HawkGold is an undercover CIA agent.

 

[racerhawk]

Okay, only 99.9999987 percent of the ag industry runs on diesel. Or do you take corn to market in a Nissan Leaf?

Leaf is slightly too small. It's a Rivian pickup truck.

 

[HawkGold]

@HawkGold is an undercover CIA agent.

Actually you are close...

 

[uihawk82]

Steve Rattner, and economics and finance guy, had his charts on tv this AM and the data shows the story of big oil cutting oil production at the start of covid, OPEC or saudi's have cut production, there is a shortage of crude. That is where the cause of inflation of gas prices lies, not caused by trump or biden.

Now, trump or biden and their people can jump on Big Oil and put in a lot of carrots or billy clubs on them to make them produce more. No real control of Opec.

Oil is one of those commodities that is close to a basic necessity, like food, where you can make more profit, by producing less. Movies as a commodity is not like that nor or many other commodities.

 

[okeefe4prez]

Steve Rattner, and economics and finance guy, had his charts on tv this AM and the data shows the story of big oil cutting oil production at the start of covid, OPEC or saudi's have cut production, there is a shortage of crude. That is where the cause of inflation of gas prices lies, not caused by trump or biden.

Now, trump or biden and their people can jump on Big Oil and put in a lot of carrots or billy clubs on them to make them produce more. No real control of Opec.

Oil is one of those commodities that is close to a basic necessity, like food, where you can make more profit, by producing less. Movies as a commodity is not like that nor or many other commodities.

Wow, you could have gotten the same analysis from me except it would have been timely rather than late.

But you are oblivious to one thing. No individual producer can make more profit by drilling less. Exxon's breakeven price is stated to be around $45 a barrel, but they have flexibility to possibly get it as low as $35 a barrel, which is why I own the stock. They went through an utter shitstorm and rationalized their operations. But they have every incentive to pump every barrel they can while prices are at this level because they will clear $75-80 in profit per barrel at these price levels.

Because no individual producer can make more profit by drilling less, some countries have joined up with OPEC so they can collectively limit output to influence price. Obviously none of the Western oil majors are part of OPEC, but they drill like hell when prices get high. The last oil spike in 2007 created massive innovation in shale production and the additional capacity that quickly came on line sent prices tumbling. There's a saying: "The cure for high oil prices is high oil prices." It creates demand destruction and spurs additional drilling. But that saying is also why Exxon has tried to get its breakeven price clear down to $35 a barrel because despite the inelasticity of demand of oil (global oil usage increases every year unless there is an economic calamity or we have a situation like 2020), it is a complete boom and bust business. Producers way overshoot on production ramp up when it gets really expensive. The Saudis want to keep oil under $100 a barrel, maybe even closer to $80, because that is the range where they don't have to worry about a deluge of oil from the Bakken coming back online.

To Obama's credit, he did a good job of not getting in the way of Bakken production and those sustained low oil prices were a big reason we had such a robust economy from 2010 onward.

 

[uihawk82]

Wow, you could have gotten the same analysis from me except it would have been timely rather than late.

From Propuplica - another as they say "possbly illegal" cause:

Simply put, as ballooning costs hit the wallets of American families, the global ocean shipping industry is enjoying its most profitable period in recent history. In the first quarter of 2022, the biggest carriers’ operating margins hit 57%, according to one industry research firm, after hovering in the single digits before the pandemic.

The hauler that wanted $12,000 per container to move the bananas told the One Banana logistics specialist that it needed the money to cover a slew of fees the ocean carriers were tacking onto freight bills. Hapag-Lloyd, the German shipping giant that owned the containers the bananas were sitting in, had become particularly notorious in the freight industry, leading to multiple complaints to the Federal Maritime Commission.

 

[HawkGold]

From Propuplica - another as they say "possbly illegal" cause:

Simply put, as ballooning costs hit the wallets of American families, the global ocean shipping industry is enjoying its most profitable period in recent history. In the first quarter of 2022, the biggest carriers’ operating margins hit 57%, according to one industry research firm, after hovering in the single digits before the pandemic.

The hauler that wanted $12,000 per container to move the bananas told the One Banana logistics specialist that it needed the money to cover a slew of fees the ocean carriers were tacking onto freight bills. Hapag-Lloyd, the German shipping giant that owned the containers the bananas were sitting in, had become particularly notorious in the freight industry, leading to multiple complaints to the Federal Maritime Commission.

Shipping rates just collapsed btw.

 

[uihawk82]

Shipping rates just collapsed btw.

I could imagine that as a whole lot of people are predicting a, call it what you want, recession, stagflation, lowered production estimates. Some years ago I read that two very accurate leading indicators of economic health and output was the situation surrounding dry shipping containers on the Baltic Dry Shipping Index iirc and the orders and production of a shipping materials like cardboard boxes, etc. I wonder what those two areas are showing. And as they say the economies of the world are like super large ships that take a long time to change course.

 

[HawkGold]

I could imagine that as a whole lot of people are predicting a, call it what you want, recession, stagflation, lowered production estimates. Some years ago I read that two very accurate leading indicators of economic health and output was the situation surrounding dry shipping containers on the Baltic Dry Shipping Index iirc and the orders and production of a shipping materials like cardboard boxes, etc. I wonder what those two areas are showing. And as they say the economies of the world are like super large ships that take a long time to change course.

What they focus on a lot in the past decade is the healthy consumer. Walmart and Target are struggling. Online clothing sales are through the roof. Treasury yields are looked at and are concerning but not all that accurate. Stagflation like the 70s are hard measures. Ag is in good shape but things are eerily like the middle/later (not late) 70s and that changed in a big hurry.

 

[MelroseHawkins]

What they focus on a lot in the past decade is the healthy consumer. Walmart and Target are struggling. Online clothing sales are through the roof. Treasury yields are looked at and are concerning but not all that accurate. Stagflation like the 70s are hard measures. Ag is in good shape but things are eerily like the middle/later (not late) 70s and that changed in a big hurry.

Just doesn't feel very stable. There is a lot of apprehension and nervousness out here.

 

[HawkGold]

Just doesn't feel very stable. There is a lot of apprehension and nervousness out here.

In farming or general? There is a lot of confidence in ag. Way too much confidence. In the late 70s prices basically went up 30 percent (doubled or more in 10 years) and farmers were flush with cash and relatively for the time low-interest rates. We are minimally going up another 3 percent and that likely won't quell inflation and likely deflated certain assets pretty hard. Low economic growth. A form of stagflation.

Btw, the Ukraine Army is close to collapse in Donbas. That will happen. What Putin will further do is beyond that.

Zelensky the hero, actually should have said OK about NATO and EU. Below is a huge issue with a Lithuanian blockaid.

and this: Ukraine's Armed Forces have attacked offshore natural gas drilling rigs in the Black Sea which had been captured by Russia in 2014