Parting Shots -- Late Sunday Night -- August 29, 2022

US inflation: putting everything together that has happened this past week suggests that Jay Powell is aware that the Fed is "way behind" in getting inflation under control.

US energy: putting everything together starting way back when the decision was first made to release a record amount of oil from the SPR suggests that the Biden administration knew very well then how severe the global energy situation had become.

By the way, the Biden administration made a shocking course correction this past week. This is serious and I'm not sure analysts have caught it yet.

For the past year, the Biden administration has been imploring, first, US oil companies to produce more oil, and then, imploring Saudi Arabia to do the same. For different reasons, neither did. Ironically, it was not a shortage of oil that was the problem, but the shortage of refining capacity in the United States. 

Catching everyone by surprise, the Biden administration moved to plan C late this past week.

Plan A: seek an increase in oil production.

Plan B: seek an increase in refining.

Plan C: curb US exports of refined products; re-orient refined products from Texas toward the northeast.

Which, by the way, since the pipelines are full, puts the Jones Act in play.

On another note, as long as I'm rambling, over the past couple of years, Saudi Arabia has announced plans to increase refining capacity. A lot of analysts interpreted this as simply as picking low-hanging fruit.

However, it now appears there was much more to the story. Somewhere along the line, Saudi recognized two things:

• the demand for refined products would increase over the next decade, not decrease; and,
• the US was not going to build any more refineries (and obviously not Europe, either). 

That left Saudi Arabia a huge opportunity.

And then ...

... it was entirely unexpected, entirely fortuitous that refining capacity in Russia is going to decline significantly starting as early as next year (2023). 

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All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them.