Another Petroleum Update

[jimntx]

Actually, money is NOT printed by the U.S. Government.
It is printed by a group of private bankers (including
John D. Rockefeller and others) and loaned to the
Federal Government, with interest. Many people would
be quite surprised to know that the Federal Reserve is
NOT part of the federal government.

Anyhow, getting back to the topic, oil futures cannot
theoretically continue to go up. Sooner or later,
profit taking will ensue and the cost will go back
down. World oil supplies right now are adequate
for the next quarter, and the speculators will have
to sell before they lose money.

[post="258773"][/post]​

Oh gee, my friend who has worked at the Ft. Worth mint for almost enough years to retire is going to be so disappointed to find out almost 30 years later that he is not a Federal employee eligible for a Federal pension. Though his paycheck says ihe is paid by the Federal government, and his W-2 says so, and his benefits statements include him with the Federal employees, I guess you would know better.

Where do you come up with these crackpot conspiracy fantasies?

 

[BoeingBoy]

Anyhow, getting back to the topic, oil futures cannot
theoretically continue to go up. Sooner or later,
profit taking will ensue and the cost will go back
down. World oil supplies right now are adequate
for the next quarter, and the speculators will have
to sell before they lose money.

[post="258773"][/post]​

Crude futures, crude smuters - unless someone comes up with a way to run these turbine engines on crude there's a couple of problems with looking at crude to the exclusion of all else.

First, there's the short-duration problem - disruptions in production capacity. Whether due to accident or foul play, we're always a nanosecond away from a shortage of refinery capacity. Did you happen to notice what happened with the explosion at the BP refinery last week? Crude prices dropped pretty dramatically didn't they (WTI was down over $4)? But what happened at the gas pump? Prices went the other way, did they not?

Second is simple supply and demand of refined products. My limited understanding is that the amound of refined product that you can get from a barrel of crude is basically fixed. Trade-offs can be made - produce more gas and less heating oil for example - but the total amount of product per barrel of crude doesn't change much if at all.

Now let's look at the some fundamentals that matter. In the latest weekly report, total production went up 2.3% year over year but jet fuel demand went up 10.8%. With demand rising faster than overall production, what do the fundamentals say about the future trend in jet fuel prices?

Jim

 

[Busdrvr]

Oh gee, my friend who has worked at the Ft. Worth mint for almost enough years to retire is going to be so disappointed to find out almost 30 years later that he is not a Federal employee eligible for a Federal pension. Though his paycheck says ihe is paid by the Federal government, and his W-2 says so, and his benefits statements include him with the Federal employees, I guess you would know better.

Where do you come up with these crackpot conspiracy fantasies?

[post="258776"][/post]​

The Fed can best be described as a "psuedo" govt agency. It's not the treasury dept or JP Morgan, but somewhere in between. Ole Henry B. Gonzelez from San Antonio was always trying to change it to a true political organization that the elected officials could completely control. Maybe we should consider it the fourth and most powerful branch of government....

 

[Busdrvr]

Now let's look at the some fundamentals that matter. In the latest weekly report, total production went up 2.3% year over year but jet fuel demand went up 10.8%. With demand rising faster than overall production, what do the fundamentals say about the future trend in jet fuel prices?

Hopefully the trends indicate that all those folks using middle distillates to heat their homes will switch to NG or electricity, and that more school bus and truck fleets will go to cleaner burning biofuel mixes and NG augmentation, thereby freeing up production for Jet Fuel. In many cases the big cost is in conversion, once you change over, you won't go back (kind of like putting insulation in the attic, even if energy prices go back down, you won't rip it out). It's called Assymetric price elasticity of demand.... . Believe it or not, the Saudi's are scared sh1tless over current oil prices.

 

[Busdrvr]

Japan wants the Yen to be at parity with the dollar ($1=1Y). The US wants the EURO to be at parity with the dollar. In a utopian world this would be the case, but with politicians concerned with the next election cycle, it is not the case. However, a weak Yen causes XBoxes to be cheaper in the US. This in effect causes more dollars to flow to Japan and they can continue buy oil at $55 per barrel. Japan wants oil to be cheaper so that they can stop printing the Yen. The value of the Yen will snap back toward parity with the dollar and euro and all would be wonderful.


WHAT?! :huh: Is that why the japanese have actively intervened in the currency market? to make the Yen more valuable?! YGTBSM! The Japanese want the Dollar around 105-110 Yen. In the past 10 years, it has range from around 80 (95-96) to over 145 (2000 I believe). At 145, manufacturing moves from the U.S. to Japan, at 80 it goes the other way.

And no, the U.S. doesn't currently want the Euro at parity. Parity means Boeings cost much more to produce than Airbuses. The Euro's intentionally set the value of the Euro (based on the currencies it replaced) to be higher than the dollar. They felt they "needed" that psycological edge, and I'm thinking they may be right as they violate stability pact after stability pact in the liberal utopias of France and Germany.

The Japanese are running HUGE budget deficits while at the same time fighting DEFLATION. Hardly the same as the hyper-inflation in post WWI Germany when it took the equivilent of the entire M-1 money supply from the previous year to buy one loaf of bread.

 

[mweiss]

Oh gee, my friend who has worked at the Ft. Worth mint for almost enough years to retire is going to be so disappointed to find out almost 30 years later that he is not a Federal employee eligible for a Federal pension.

[post="258776"][/post]​

To be clear, the Mint is a completely different entity from the Federal Reserve. Congress has complete and direct authority over coinage, but only indirect authority over Federal Reserve Notes (i.e., dollar bills).

The Federal Reserve manages the banking system of the US. All banks in the US have an account with the Fed in one way or another. The big boys have accounts directly with the Fed, and the little banks have accounts with the bigger banks. All of these accounts are settled once daily and represent notational money (i.e., they're nothing more than numbers in a spreadsheet). Fiduciary money comes in two forms, paper and metal. Banks order these from the Fed as needed, and send excess to the Fed. When they order it, their accounts are deducted accordingly; when they return it, their accounts are credited. This particular element of the banking system works just like it does with you at your bank.

The Fed orders dollar bills from the Bureau of Engraving. If the Fed asked for a quadrillion $1 bills, the B of E would produce them (after complaining about being unable to make any stamps for a couple of years!) and send them to the appropriate branches (there are twelve of them). It doesn't really behoove the Fed to request more than they need, since they won't hand them to the banks unless the banks order them, and the banks won't order them unless they need them and have enough notational money to cover the order.

 

[funguy2]

Now let's look at the some fundamentals that matter. In the latest weekly report, total production went up 2.3% year over year but jet fuel demand went up 10.8%. With demand rising faster than overall production, what do the fundamentals say about the future trend in jet fuel prices?

Ok... but, demand for JetA cannot continue to increase in double-digit percentages when 1) the cost of fuel continues to rise, based on demand and 2) the airlines cannot appreciably pass that cost on to their customers.

The problem lies in the fact that airlines are a high fixed capital costs business combined with a network business. This creates a situation where the high capital costs and network effect combine to make capacity reductions especially painful. If you take away one money-losing route, often another marginal route becomes a loser due to the feed affect.

So again, we have too many seats chasing too few profitable customers (i.e. customers who actually pay more than the cost of the service). Once this is corrected, I beleive the demand for JetA will become more "normalized". That is my opinion.

 

[BoeingBoy]

Ok... but, demand for JetA cannot continue to increase in double-digit percentages when 1) the cost of fuel continues to rise, based on demand and 2) the airlines cannot appreciably pass that cost on to their customers.

So again, we have too many seats chasing too few profitable customers (i.e. customers who actually pay more than the cost of the service). Once this is corrected, I beleive the demand for JetA will become more "normalized". That is my opinion.

[post="258886"][/post]​

I don't really disagree with your fundamental point, but I suspect that global demand for jet fuel will be higher 3, 5, or 10 years from now than it is now. Barring some cataclysmic event to really depress demand for air travel, that is.

So over the longer term, the question seems to be whether there will be the additional refining capacity and/or drops in demand for other refined products to allow the increase in jet fuel production to keep up with demand.

Just an addition, FWIW. In the 2003 vs 2004 demand growth, imported jet fuel (not crude or domestic production) covered most of the extra domestic demand.

Jim

 

[funguy2]

Can't disagree with you there BoeingBoy... My only other comment is that long-term, we should also see technology advancements help reduce the demand for JetA. In the USA, the majority of Stage II aircraft fleet has been retired, and many of those aircraft were gas-guzzlers. Presumably, the demand for JetA has not increased at the same rate as demand for Air travel, as more fuel-efficient aircraft have replaced less fuel-efficient aircraft.

This trend should continue... The 787 is supposed to be 20% more fuel efficient (I seem to recall reading that) and the A380 should be more fuel efficient as well, at least per seat...

 

[BoeingBoy]

This trend should continue... The 787 is supposed to be 20% more fuel efficient (I seem to recall reading that) and the A380 should be more fuel efficient as well, at least per seat...

[post="258906"][/post]​

Agreed. Only thing I can add is that due to the nature of the airline/airplane manufacturing business, achieving better economy takes longer than with, say, automobiles.

As for the A380, you are correct on a per seat basis. So if an A380 replaces 2 777 (for example) flights less fuel is burned. However, if only one 777 flight is replaced, total fuel burn should go up.

Jim

 

[funguy2]

Well, if only 1 B777 flight is replaced by an A380, I would expect that the demand exists for the extra seats... Furthermore, the extra seats are being provided for at less fuel per seat than the B777... So, operating 1 A380 + 1 B777 flight should be more efficient on a per seat basis than operating 3 B777 flights (although, there may be decent marketing considerations for 3 B777 flights... but I am assuming those are a non-issue for this discussion).

 

[jB-Rocks]

What a barrel of crude oil makes.
Product Gallons per Barrel
Gasoline 19.4
Distillate Fuel Oil 9.7
(Includes both home heating oil and diesel fuel)
Kerosene-Type Jet Fuel 4.3
Coke 2.0
Residual Fuel Oil 1.9
(Heavy oils used as fuels in industry, marine
transportation, and for electric power generation)
Liquefied Refinery Gases 1.9
Still Gas 1.8
Asphalt and Road Oil 1.4
Petrochemical Feedstocks 1.1
Lubricants 0.5
Kerosene 0.2
Other 0.4

 

[Busdrvr]

What a barrel of crude oil makes.
Product Gallons per Barrel
Gasoline 19.4
Distillate Fuel Oil 9.7
(Includes both home heating oil and diesel fuel)
Kerosene-Type Jet Fuel 4.3
Coke 2.0
Residual Fuel Oil 1.9
(Heavy oils used as fuels in industry, marine
transportation, and for electric power generation)
Liquefied Refinery Gases 1.9
Still Gas 1.8
Asphalt and Road Oil 1.4
Petrochemical Feedstocks 1.1
Lubricants 0.5
Kerosene 0.2
Other 0.4

[post="258931"][/post]​

That's what the average barrel actually makes not what it CAN make. Big diff

 

[TechBoy]

Actually folks, the Fed CAN "print" money. They do it by buying Treasury securities on the open market. They pay for it using Federal Reverse Notes, e.g. dollar bills (paper or electronic), and increase the amount of money in circulation. That's how it's worked for years. Call it what you want, but they have the ability to do it. Now, whether that is wise is another question entirely.

 

[mweiss]

Actually folks, the Fed CAN "print" money.

Yes they can. Since they're not exactly "the government," I take issue with the suggestion that "the government" can simply print money.

As you noted, the Fed can print money, but the only place they go is into Treasuries. In that respect, Congress increases the money supply through borrowing. Of course they do. That's what borrowing does...it creates virtual money.

However, money created due to lending has different characteristics than money created by fiat. Credit-based money has risk associated with it, limits on how much can be created, and acts as a fuel for economic growth. Fiat-based money is relatively risk-free (its only risk is that of the entire money system), has no limits on how much can be created, and acts as a fuel for inflation.