Dec. 6, 2022

The Winter Of Our Discontent

Not since the first caveman invented fire have so many focused on finding energy—energy of all types. The kind of energy needed to cultivate our crops, to pump our water, and most relevant today, to warm our homes. Power comes from many sources, electric, wind and, solar, nuclear, but by and large, mainly from fossil fuels.

There is a growing struggle to obtain the energy needed to heat our homes as winter comes to the Northern Hemisphere. This year's energy crisis in America seems not quite as harsh as last year's. But we must still deal with the higher energy prices.

However, concern has grown to an epidemic in places like Germany. There are reports of many using wood to heat their houses, which was unheard of just a few years ago. Many Pubs in England have closed for good because they can't pay their energy bills. The entire continent of Europe is preparing for the worst.

The Russian siege has focused on Ukraine's energy systems. In a classic maneuver to force Ukraine to withdraw from fighting and support its populace.

Like those prehistoric days, those who secure sufficient energy will survive the winter quite well. Warm and comfortable by their fire. In contrast, those unable to obtain energy face a bleak and frigid future, perhaps even life-threatening.

The most fascinating about today's energy crisis is that not every country is affected. Some countries appear to have an abundance of cheap energy. At the same time, others face a dark and uncertain energy future.

However, the dividing line between the energy haves and haves-not is different from what you'd expect. In our modern history, those countries that have had the highest standard of living, the most remote from the vicissitudes of natural disasters, have been the Western Democracies. These countries have collectively sailed over many of life's troubles from America to Europe to the Western Portion of Asia.

For instance, if you read about famine, pestilence, drought, and disease, it was usually somewhere else. The third world was where these troubles abound. Not in the advanced, "first" world.

Much of the "third world," particularly in the Middle East and Eastern Asia, is awash with cheap, plentiful energy. Oil-producing countries: Saudi Arabia, Argentina, and Russia pay one-third the price for gasoline than Western Europe.

In Saudi Arabia and Indonesia, gasoline costs less than 65 cents per liter. While in France, Germany, Italy, the Netherlands, and Switzerland, the cost is more than $1.75 per liter. That's a difference of at least $1.10 per liter. And a clear indication of availability.

And that's the key to this entire situation: availability.

For too long, the collective West has believed that we are so wealthy that we can buy all we need. It's a way of thinking that considers all our needs or wants to be available for purchase at a price.

Here's a recent story of just how this works. Tiny Moldova, a country that is adjacent to Ukraine, has been suffering blackouts whenever Ukraine's electric lines go down. Additionally, Moldova gets much of its oil and gas from Russia, but now with the EU Boycott of Russian Oil and Gas, that also is no longer available for Moldova.

Here is a country suffering from a lack of energy.

Enter United States Secretary of State Anthony Blinken. Speaking before European leaders on Monday, Blinken began to outline the various aid packages he is preparing to send to Ukraine, stockpiles of additional military equipment, some humanitarian aid, and most especially, energy assistance.

And then, in a grand gesture, the Secretary of State announced that the US would send $1.1 billion to support Ukraine and Moldova's energy needs.

That may seem an incredibly generous act by the Secretary but consider this. This American Aid is a gift of cash, not energy supplies. The Secretary should have promised to deliver barrels of oil to Moldova or Ukraine. But he didn't. He promised only money. As if to say to these two countries, "here, go buy your own."

But how will Moldova "buy its own?"

In addition to being a small country, Moldova is also landlocked. There have been talks of a pipeline through Turkey that would aid Moldova. But for now, almost all the land-based oil transport for Moldova is gone. The Nordstream Pipelines have been destroyed, and the few pipelines from Russia are cut off. Virtually all the transported oil throughout Europe must now come from ships.

It was as if Blinken was saying, "If we just throw enough cash at it, the problem will go away," a questionable tactic at best.

I'm sure the Moldovans would have preferred oil.

 

Econ Briefs

 

There is an interesting article by John Kingston over at Freight Waves, a trucking industry publication. Kingston reports that we've seen a dramatic drop in diesel prices this week, with diesel declining by over 17 cents on Monday.

Lower Diesel prices are big news for those on the east coast. As you may remember, it was less than a month ago that analysts predicted that there would be a diesel shortage in this part of the country beginning right about now.

That's not going to happen. For only the fourth time in history, Refineries cranked up to nearly 95% capacity and pushed up diesel stocks. A combination of refiner output and, I suspect, reduced demand has dropped diesel prices at the pump.

For now, the diesel crisis is abating, and just in time for Christmas.

On the economic calendar this morning, the latest trade figures are expected to show a nearly $80 Billion deficit.

In earnings this morning, upscale Real Estate Developer Toll Brothers will report results shortly, along with Signet Jewelers and Smith and Wesson.