Before we get started, I haven’t gone through my twitter feed all day. I just went through the feed. Holy mackerel. Every country, every company, with minor exceptions is exiting Russia. Russia’s economy is smaller than Texas so perhaps it’s no big deal, but imagine if Russia becomes a “failed nation-state” literally overnight? Population? One-hundred-fifty million people, just slightly less than half of the US. Germany has 85 million people. This is a big deal. Russia becomes a “North Korea” overnight.
Now, back to the price of oil.
So many story lines:
Let's go through (some of) the list:
- the perceived shortage is so severe, countries around the world are releasing oil from their strategic petroleum reserves;
- and, yet, if this shortage is so severe, why is the number of days of US crude oil in storage trending up?
- "they" agreed to release 60 million bbls; global demand is 60 million bbls every twelve hours or so;
- everything I've read suggests US refiners don't need more light oil "right now." They've been operating at 87% capacity for as long as I can recall, and have not complained about a shortage of supply.
- those folks who suggest oil should be no more than $30/bbl right now have a pretty good argument; but so far, they aren't winning.
- we haven't even gotten to --
- driving season yet
- hurricane season yet
- inflation;
- to explain oil moving from $60 to $120? To say inflation, that seems a bit excessive.
- producers from OPEC to Texas are holding the line on production;
- there are three main producers
- Saudi: holding the line; if any increase in production, that increase will be measured and moderate
- US: the current administration is still anti-oil; not one initiative to encourage more production; in fact, quarterly federal lease sales scheduled for 1Q22 will not be held ("someone's dog ate the paperwork"; someone missed the deadline to file the necessary paperwork to hold the quarterly lease sale)
- Russia: we all know that story;
- SOTU address: Covid is over; back to normal; the US is coming out of a two-year lock down; the economy is poised to surge -- think about that, a two-year lock down coming to an end; wouldn't this be like the end of WWII in 1945?
- supply chain shortages: I haven't heard that phrase uttered in weeks;
- today's job report: absolutely blew the door down; completely exceeded analysts' expectations;
- Jay Powell's remarks suggests he doesn't want to be blamed for upsetting the punch bowl; will raise rates 25 basis points -- yawn.
- how did the market react to his comments? Let's just look at one -- just one -- data point suggesting where traders think the US economy is headed: did anyone see this? Did anyone pay attention to this? UNP jumped over 4% today; jumped almost $10 and closed at $252; on a macro scale how much more bullish can one get about the US economy?
- an aside: decades ago I subscribed to an investment letter: "Dow Theory." A jump in transportation like today would have been said to be about as bullish as anything could be
- if UNP jumped $10 today based on fundamentals, can you imagine how BNSF is doing, owned by Berkshire Hathaway / Warren Buffett -- if you haven't read his annual letter -- released over the weekend -- well, what can I say? One can lead a horse to water ...
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Sixteen Reasons
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