Update On CAFE Standards And Big Trucks, SUVs -- February 22, 2015

Big Pick-Up Trucks, SUVs In Texas

Remember this from yesterday's blog?

I don't know if folks have noticed -- it's hard not to notice: pick-ups are getting bigger and bigger. In Texas they are really getting big. I never understood it; with the CAFE standards I thought automobile and light truck manufacturers would have been forced out of the "big pick-up" business. It turns out that, in fact, things changed. The change must have been seen by no one except the light truck manufacturers.

BloombergBusinessweek has a huge story on why pickup trucks are getting bigger and bigger.

The fact that BBW did a story on this suggests to me that a lot of folks were caught unaware. The link to the story is here.  

The Sunday edition of The Dallas Morning News also carried the story with a slightly different angle:

Big Escalade SUVs fly off the lot at Sewell Cadillac, even though the leases cost $1,000 or more a month.

“If we can get one, it’s sold as soon as it gets here,” said Carl Sewell, chairman of Sewell Automotive Cos., which owns Cadillac dealerships in Dallas and Grapevine. “They sell faster than anything on the lot.”

Consumers began gravitating to truck-like vehicles about two years ago. SUVs, crossovers of all sizes and pickups sizzle these days and will probably lead the auto industry to double-digit sales growth this year, analysts say.

Low gas prices are fueling that fire, helping vehicles like the Jeep Grand Cherokee, Honda CR-V and Ford Explorer record sales increases of 20 percent or more in January.
“People are coming in to look at sedans and going straight to the crossovers,” said Brian Huth, general manager of Five Star Ford in Plano.

The trend is pumping up automaker and dealership revenue but flattening out fuel-economy gains.

The average fuel economy of all new vehicles sold in the U.S. barely rose last year. The fleet average in 2014 was 24.1 miles per gallon, only one-tenth of a mile per gallon better than 2013. In 2013, the average rose half a mile per gallon.

If the trend toward trucks persists, it will put additional pressure on the federal government’s lofty corporate average fuel economy, or CAFE, standards.

Much, much more at the link.

I see a lot of Sewell Cadillacs in my neighborhood. The last car I bought was a 2012 Honda Civic from Ryan Motors, Williston, North Dakota. I think I wrote about that some time ago. It was back in 2011 and, because of flooding, the only way out of Williston  was to drive (Amtrak was out of commission due to flooded tracks). The only option for me was to buy a car, and that's what I did.

I bought the car from Ryan Motors, and had it registered in San Antonio, Texas, where I was living at the time. (A long story regarding the registration.)

A day or two after buying the Honda Civic, I drove cross-country to Boston and gave it to my older daughter (another long story) where she put 50,000 miles on it in about two years. (And they say folks don't drive cars in Boston. LOL.)

The car is now in Grapevine with us and is pretty much used for cross-country driving. On open roads, at about 60 mph, I can get 49 mpg.

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Global Warming? What Global Warming?

Global warming? The Washington Post is reporting:  120-year-old record low broken in D.C., one of many today and in the past week.

We talk about record highs a lot in Washington, but the recently unfathomable was accomplished this morning. We broke a record low.

A temperature of 5 degrees was enough to smash a 120-year-old record for the date — a moment worthy of meteorological reflection.

When the city — often the warmest location in the region — is breaking record lows, you know it’s a cold one.

Much of the area saw one of the most truly frigid nights in recent memory last night, made more amazing because of how late in the season it happened. 

"How late in the season?" What are they smoking. It's the middle of February, generally the coldest month of the year where I come from.

Don notes that the temperatures would have been even colder had NOAA not "seasonally adjusted" them.

What Will Happen When Cushing Reaches Capacity? -- February 22, 2015; Short Note On "Cold Drafting"; Mismatched Socks -- A New Fashion Trend

That was the question I left readers with last night: what will happen when Cushing reaches full capacity, which should happen sometime in April or May of this year, just months from now.

I suggested back on January 19, 2015, that when that happens, the US will notch another record:

I am unaware of any weekly period in which gasoline demand in the United States went over 9.5 million bopd over the Memorial Day Weekend, but it certainly looks like we could do that later this spring, 2015.

Gasoline stocks continue to rise ...

... but gasoline demand continues to fall, typical for this time of year, scroll down at the previous link. 

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Quick: Pop Quiz

Which Country Was The 2nd Leading Contributor to Global Oil Supply Growth in 2014?

Your choices:

• the United States
• Canada
• Mexico
• Brazil
• Venezuela
• Saudi Arabia 
• Iraq
• Iran
• China
• Luxembourg

The answer at this link. Before you look, who was fifth? The levels shown on the bar graph at the linked article represent the increase in oil production over calendar year 2013.

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Local Gossip

A writer in the Montana Bakken suggests to me that he may have been the target of some "cold drafting," and we're not talking about furnaces.

According to this blog, "cold drafting" is:

a term used for the practice of sending a lease to a landowner with a draft for the bonus, in effect making an offer to lease, but with no present intent to honor the lease; evaluating whether to pay for the lease after the draft has been deposited and the lease signed and returned to the landman; and then picking and choosing which leases the company wants to take and which they want to reject. It allows the company to “lock up” the acreage by committing the landowner to the lease for the (usually 90) days that the draft is outstanding. Landmen should, in my view, refuse to participate in such practices, and they should certainly be considered unethical.

Update: a former landman writes that there is a way to prevent oneself from being the victim of a "cold draft": ask for a 20% "upfront signing bonus" with the balance due a year later when the existing lease expired. 20% helps keep the landman "honest" and preventing him from trying to "peddle" the lease...

Update: another reader, from Ray, North Dakota, also wrote to say they were victims of a "cold draft" also. I suppose things have slowed down a lot now in the leasing business but it sounds like if one has sizable interests in oil, consulting an oil and gas lawyer would be highly advised. 
 

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A Note to the Granddaughters

About a year or so ago we noted that our 8.5-year-old granddaughter was routinely wearing mismatched mid-calf socks  or mismatched knee-high stockings. At first we were caught a bit off-guard but over time, we really enjoyed the color and playfulness. We never really talked about it, maybe mentioning it once or twice.

In yesterday's Wall Street Journal, front page, lower right: "Socks Are No Match For This Teen Clothing Trend."

Susana Yourcheck keeps a basket of mismatched socks in her laundry room, hoping that the missing match will eventually reappear. The pile is getting smaller these days, but not because the solitary socks are magically being reunited with their mates.

The credit for the smaller stash goes to her two teenage daughters, who no longer fuss to find socks that match. That’s because fashionable tweens and teens favor a jamboree of solids, colors and patterns on their feet.

“All my friends do it. Everyone in school wears them this way,” says 15-year-old Amelia Yourcheck.

For laundry-folding parents, the best match is sometimes a mismatch.

When asked about this story, our granddaughter said it was simply to save time when folding laundry. The granddaughters are required to sort and fold laundry, a chore they do not like. I think the older one spends most of her time griping about doing the sorting and folding whereas the younger one simply finds shortcuts.

If I remember, a photograph soon. 

Tweeting Now -- February 21, 2015; What Happens When Cushing Reaches Full Capacity?

Tweeting now:

• Winter Storm Warning issued for North Texas - @NBCDFW
• Editor's note: We're seeing numerous unconfirmed reports that Turkey may be moving military vehicles into Syria in an apparent attempt to guard the Tomb of Suleyman Shah, a sovereign Turkish exclave located in the Syrian state of Aleppo. - Jimmy
• Long lines at Rockhampton, Australia, fuel station as people get gasoline for generators; witnesses say wait is more than 3 hours long - @louisarebgetz 

Rockhampton (Australia) (AFP) - Australia was clearing up Saturday after two severe cyclones left a trail of destruction, wrecking hundreds of homes and cutting electricity to tens of thousands, even as authorities warned of more flooding and gusty winds to come.

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Crude Oil Pouring Into Cushing, OK

What Happens When Cushing Reaches Maximum Capacity?

NewsOK is reporting:

As the price of oil has plummeted over the past seven months, companies have stockpiled as much as 2.2 million barrels a week at Cushing, rapidly filling it to more than half capacity. As of Feb. 13, Cushing’s storage tanks held nearly 46.3 million barrels of crude, according to the U.S. Energy Information Administration.

The stored oil is worth almost $2.4 billion even at today’s depressed prices, and the companies that own the crude hope it will be worth much more.

The oil market is in contango, which means oil delivered in the future is worth significantly more than oil delivered today. The price of oil for March delivery slipped 98 cents Thursday to $51.16. Oil to be delivered in March 2016, however, settled at $60.26.

The more than $9 premium means companies make more money storing their oil at Cushing or another storage facility and waiting to deliver it into the market.

While the contango market is driving some of the storage increase, another issue is that producers continue to flood the market with more oil than consumers can handle.

At the current fill rate, Cushing could reach operational capacity by April, said Brian Busch, director of oil markets and business development at Genscape.

“I don’t think we’ll continue to fill at that rate. We saw some drop-off this week,” Busch said. “But I think Cushing will be filled sometime in May.”

 So, what happens when Cushing reaches capacity?

Enerplus Cuts Dividend; Will Defer Completing North Dakota Wells -- February 21, 2015

The Calgary Herald is reporting:

Low oil and gas prices have prompted Enerplus Corp. to cut capital spending for 2015 by a further 24 per cent, chop its dividend by 44 per cent, sell assets, shut in Pennsylvania gas wells and defer completing North Dakota oil wells.

The news Friday came on the heels of similar budget cutting at another intermediate Calgary producer, Baytex Energy Corp., which announced late Thursday it would cut its 2015 spending by $75 million to a range of $500 million to $575 million and reduce output guidance by 4,000 barrels of oil equivalent per day to 84,000 to 88,000 boe/d.

As New York benchmark oil prices slipped below $51 US per barrel on Friday, less than half the price peak of last summer, Enerplus closed up five cents at $13.54 and Baytex was down 32 cents to $22.23.

On a conference call, Enerplus president and chief executive Ian Dundas said he prefers to think of his company’s moves as “prudent” rather than “conservative.”
“As we continue to experience significant commodity price weakness, we are adjusting our plans to preserve value in the near term and ensure the financial strength of the company,” he said.

See disclaimer. 

Letters From Southlake, Texas -- February 21, 2015

This post will have nothing to do with the Bakken, so if you came here looking for the Bakken, scroll down or click on one of the 1,267 links at the sidebar at the right, most of which concern the Bakken.

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Apple

I'm looking at and working on a brand new MacBrook Pro. Actually, it's the same one I've had since about 2010 but it's got a new battery and it's been cleaned professionally by the Apple store folks. It's so clean, it honestly looks like a new computer.

I mentioned the other day that my hard drive crashed Friday morning. I took it to the local Apple store in Southlake and ... wow, what a great experience .... Plan B was to buy a new laptop, but unfortunately they were able to diagnose the problem and fix the problem on site. It turned out that the hard drive was fine: the cable to the hard drive had "gone bad." It's hard to explain, but apparently the 13-inch MacBook Air is so small, that things get a bit hot, and the cable to the hard drive is one of those things that might deteriorate over time.

Diagnostically the battery was about ready for replacement, so I had that done also.

For those who have never experienced an Apple Store, it's quite remarkable. Even I find it quite remarkable every time I go, and I visit fairly regularly. When I walked in yesterday morning, I was greeted and asked what I needed. I was referred to "Michael" who was in the middle of the store in front of a "virtual counter" where three real human beings were in line, waiting to be seen at the Genius Bar. I didn't have an appointment (I was there at 10:00 a.m. and the next available appointment was 5:45 p.m. that evening. Michael was surprised that I wouldn't mind "waiting stand-by" -- and 35 minutes later a man walked up to me, and said, "Bruce, welcome to the Apple Store. I'm Randy. Let me introduce you to Daniel at the Genius Bar." (The concierge, Michael, who had checked me in, identified me to the Apple manager by text as "old white man, black leather jacket, green back pack, wandering around the store" -- that's how Randy knew who I was. -- Note: some of the names have been changed because I couldn't remember them all.)

Long story short, while I went to Barnes and Noble, Apple fixed my computer, phoned me and I returned a couple hours later to pick it up. My computer had never looked so good; as good as the day I unpacked it for the first time. It does look like I'm on a new computer except I notice the two keys that are losing their color, and I recognize it as mine.

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Trader Joe's

The Kennedy cold front is supposed to hit Grapevine / Dallas / Southlake tomorrow night, and it was supposed to be a bit cooler today, but it turned out to be a wonderful afternoon, so I biked to Trader Joe's, exactly 6.0 miles from the Grapevine apartment. It's 5.5 miles to Starbucks and another half-mile to Trader Joe's. The Southlake Trader Joe's opened yesterday; the parking lot was full; traffic control provided by uniformed police. Today the same but I was able to bike to the front door.

The store was very, very crowded -- shoulder-to-shoulder -- but not as bad as a typical day at Disneyland. I assume it was about as crowded as Disneyland on Tuesday morning the week they revealed there was a measles epidemic in the park.

Surprisingly the shelves were all full; it appeared they had not run out of anything. Obviously very, very well prepared.

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Swim Suit Sale

I didn't buy anything at Trader Joe's; I was only in the store for about five minutes. It's a typical Trader Joe's. I will return when I need something. Then a bike ride to Starbucks to write this.

Passed "Everything But Water" which was having a swimming suit sale. I did not stop. Men are from Mars, women are from Venus; women buy their swimming suits from boutique stores like "Everything But Water"; men buy their swimming suits from Walmart or JCP.

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Soccer

Our middle granddaughter, 8.5 years old, played two soccer games today. The first game this morning was "recreational." Our team won, 3 - 0; our granddaughter scored all three goals.

This afternoon's game was "Premier League" -- invitational only -- for all the marbles -- trophy competition at the end of the season -- every game counts towards "seeding." This is the "big league.' Our team won 2 - 0, and almost 3 - 0. Soccer is an interesting game. The "better" team doesn't always win. Our team was clearly the better team but we easily could have lost. I'm sure soccer mom knows what I mean.

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Pick-Up Trucks

I don't know if folks have noticed -- it's hard not to notice: pick-ups are getting bigger and bigger. In Texas they are really getting big. I never understood it; with the CAFE standards I thought automobile and light truck manufacturers would have been forced out of the "big pick-up" business. It turns out that, in fact, things changed. The change must have been seen by no one except the light truck manufacturers. BloombergBusinessweek has a huge story on why pickup trucks are getting bigger and bigger. The fact that BBW did a story on this suggests to me that a lot of folks were caught unaware. The link to the story is here. 

Many, many story lines. It has to do with CAFE standards which some doctorate student figured out in 2011:

Kate Whitefoot, a researcher at the National Academy of Engineering, came to believe that the new CAFE rules were tilted in favor of large pickup trucks while working on her doctorate in design science at the University of Michigan. In a 2011 article in the journal Energy Policy, Whitefoot and a mechanical engineering professor, Steven Skerlos, concluded on the basis of computer simulations that it would be cheaper to meet the new standards for big pickups than for small pickups, SUVs, or cars. “The goal of the policy was that vehicle size wouldn’t change at all,” Whitefoot says. Instead, “We’re seeing that it clearly is going up for trucks.”

Light truck manufacturers are reaping huge benefits from the new CAFE standards and their goal is to put every American in a pickup truck (although that's a bridge too far in Boston).

If you're read this far, then consider this, some dots to connect. Regular readers know that there will be a relative shortage of oil in 2017, possibly as early as 2016, as the majors shut down / delay / cancel "big cap" projects in 2014/2015 due to the slump in the price of oil.

Now, add that to the fact that auto and light truck manufacturers are out to put every American in a big pick-up truck. Those big pick-up trucks are gas guzzlers.

So, a perfect storm for some folks in 2017, maybe in 2016, certainly by 2018.

But it gets even better for oil and gas investors (see disclaimer): the CAFE standards that favor big pickup trucks (and possible bigger SUVs) do not change until 2022.

The NHTSA says it will look at the rise of big pickup trucks as part of a review of the CAFE rules that will apply to model years 2022 to 2025. That review doesn’t have to be finished until 2018, but the skirmishing has already begun.

But regardless of the new rules, they don't come into effect until model years 2022. That's seven years from now. Seven more years during which light truck manufacturers will try to get every American into a pickup truck. With an Apple dashboard.

For those who survive the current slump in the oil and gas industry, 2017 - 2022 should be awesome. That's still within my investing lifetime.

Again: see disclaimer.

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Rocky Week

Wow, talk about a rocky week for investors -- maybe "rocky" is the wrong word, but certainly a strange week. I don't think I've seen such negative news in such a long time (at least not since November, 2008): the Dubai Torch lives up to its name; Iran is one week closer to going nuclear; Greece all but defaults; the Russian separatists take more ground from the Ukrainians; ISIS is declared a non-Islamic terrorist group; the entire west coast port system shuts down for four days; a Texas judge stands up to the President on amnesty; Health and Human Services sends out 800,000 botched ObamaCare forms; the ObamaCare website wimps out; we learn that the Founding Fathers were Muslims; we also learn that the civil war was all about ending Muslim slavery; another Bakken crude oil unit train explodes when it goes off the tracks; the Great Lakes froze over; new cold-temperature records all along the East Coast; and, the Boston light rail system is shut down.

And that was just the top headlines from Drudge and Savage Nation.

And at the end of the week, how was Wall Street doing? First time unemployment claims plunge (bad news for the market; makes it easier for Janet Yellen to raise rates) and the market hits new records. Warren Buffett dumps XOM and buys DE.

But wow! The market hits new records. It appears, for those new to investing, the only thing young investors have to fear is ... Greece.

Greece: whose GDP is less than that of Williston's.