Oil, Oil, Toil And Trouble, Plus? Raccoons.

“No long, slow sleep of death embalmed.  We shall burn, like the heathen kings of old.  Bring wood and oil.” – Return of the King

AOC is introducing legislation to make him climate friendly and change his name to Vin Solar.

Arguably, the biggest machine humanity ever built is the hydrocarbon industry.  Annually over half of a trillion dollars are spent exploring for it.  Oh, sure, that’s what a Big Mac© will cost in 2036, but right now I wouldn’t turn it down. That’s just finding and getting it out of the ground.  All in, with pipelines, ships, rail cars, and refineries, it costs about $1.2 trillion a year.  Well, that was last year.

This year it will be more.

The killer is supply and demand.  Less oil is getting on a boat and going to Rotterdam, so that takes it off the market.  The Strategic Petroleum Reserve is nearing levels that some have said risk damaging the storage infrastructure itself, but it’s in Louisiana and Texas, so they’re used to the smell of oil in the morning.  Smells like . . . money.

But what people miss is that it’s a finely tuned industry.  It’s not like there are extra wells sitting around, waiting to produce.  And, after Ukraine sent all those flying lawnmowers covered in C4 into refineries in Russia, that stung.  It ended up taking out millions of barrels of capacity versus their peak refining capacity.  That’s less bubbling crude being turned into diesel.

What would Jed Clampett do?

Thankfully, we also have Gulf War VII, Part 58, so that the oil produced is actually even lower than the capacity of the refineries.  The IEA© (That stands for International House of Pancakes®, but in French, I think?) is guessing that things are rapidly falling apart when it comes to the amount of oil available and the fuel we can make out of it.

We have an oil tank.  And its level is dropping.

Even when the oil comes back, we still need to figure out how to mash it into diesel, which won’t happen overnight.

What does that leave?

Demand destruction.  Those are fancy words, but the short version is that the solution to high oil prices is high oil prices.  Yes, I used to drink gasoline like it was milk back in the day, because despite trillions of dollars being spent to find it, drill it, pump it, pipeline it, smash the dead dinosaur molecules around so the T. Rex bones don’t get stuck in the bottom of my gas tank, gas was cheaper than bottled water.

Was.

Now it’s expensive, so people will stop drinking gasoline and diesel.  And they’ll stop driving.  And they’ll stop idling their cars so they use less of that wonderful fuel.

If you lock your girlfriend and your dog in the trunk for an hour, generally only one of them is happy to see you when you open it back up.

As we’ve discussed before, the poorer nations will be hit first, and hit hardest.  For me, it means, well, nothing as far as my fuel purchases.  I drive about four miles a day on the average day, so add the three and carry the two . . . that’s about 120 miles a month.  At $4.50 a gallon and 20 miles per gallon, that’s, dang, complicated.  It’s too complicated to figure out.  You’d have to use multiplication or some other tool of the Devil.

As gas.  Not as the economy, and it’s an isolated view.

But the cost of fuel is a tax that hits every physical object that is moved in space to be bought and sold.  I know that now that if I want steak, because it’s steak and who doesn’t want steak, it will now cost more.  It costs more to get food to the cattle, move the cattle, convince the cattle politely to disassemble themselves into Wilder-sized portions, and move their soon-to-be-grilled-ribeyes to my house.

What’s more Irish than potatoes?  No potatoes.

If that gets too expensive, maybe I’ll have chicken.  But for the person who can already only afford chicken, I think they have to move to something like mouse.

The short version is that demand destruction means people don’t buy as much of whatever demand is being destroyed because they can’t afford it.  Demand destruction is just a fancy way of saying, “you’re all getting poorer, so learn to catch raccoon”.

There’s other positive news!

10 of 11 postwar (World War II, not the Franco-Prussian War) recessions were produced by . . . oil price highs that exceeded the three-year high.  Which is right where we are.  This didn’t happen in 2022, because everyone just decided to print money so we could build all the data centers we can eat instead of having a recession, so in my mind we just kicked the can down the road a bit.

Money printing is magic!  Do you think they’ll stop now?

No.  But what about oil.  We make and export oil now.  Surely, John Wilder, that will save us!

No, it won’t.

Surely that will never happen with the dollar, right?

I mean, sure, it’s nice that roughnecks will be getting some more hours in down in Texas, but that doesn’t help much when you’re a farmer trying to harvest the crop with diesel that’s now twice as expensive as you planned on.  On balance, my money is still on this increase in oil prices resulting in not only demand destruction but salary deconstruction.

Salary deconstruction?  Oh, nevermind that.  It’s just a fancy name for people getting fired, or not getting hired.  Raises will be down right at the time that people will be feeling more costs, and it will be harder to get a job.  In the 1970s we had stagflation.

I wish this would be Epsteinflation, because at least then we’d never see it.

No, this will be Zendayaflation, because even though no one wants Zendaya, Zendaya is everywhere and in everything.  Like the inflation we’re starting to see, small, mean looking, but you know that it’s going to grow and resemble a linebacker.

I bet when Zendaya starts counting carbs, she’ll go for a high score.

How do you get $1.2 trillion?

Just jam up the world’s biggest machine, and then create ones and zeros so we can spend them faster.  The downside of that Big Mac© that costs only $1.2 trillion?

You don’t get any fries.  And the burger isn’t exactly made of beef.