Wow, I miss one day and the world falls apart! Yesterday I was honored to speak at Loyola’s Women of Wisdom event and when my speech was over my voicemail was overflowing. It seems that every time I miss a day some catastrophe strikes the world.
The petroleum sector got smashed for a multitude of reasons. Everything from fears of a Chinese’s slowdown to concerns over Europe and a world without quantitative easing himself, Ben Bernanke. Not only were there rumors making the rounds, that the Fed Chairman would quit, the increasing possibility of a Romney presidency has the prospect for QE Infinity come to an end, as Governor Romney has said that he would appoint a Fed Chairman with a different economic philosophy that includes a strong dollar. A strong dollar of course would decrease commodity prices and the lack of cover from the Fed would keep hot money flows into emerging markets. That could slow-down China and hurt demand more despite today’s uptick in Chinese manufacturing.
That of course makes today’s Fed announcement interesting even though not much change is expected from a Fed with a possible lame-duck chairman. It is possible that other Fed Governors sensing Blood in the water may try to start to assert their independence and try to score points with what could be a new administration. At the same time the markets were making news on the big picture stuff, like predictions that the US would be producing more oil than Saudi Arabia and natural gas creating an economic boom, which is exactly what I was telling the ladies at the Women of Wisdom Conference. Part of my speech was as follows:
The topic of energy of course is hotter now than it has ever been! With wildly fluctuating gas prices and consumers crying foul the Presidential Candidates have made energy a very big part of this upcoming election. I know that sometimes when you watch the debates and listen to all of the reports on energy, and you fill up at the gas pump, it become extremely frustrating to get a handle of what is going on in the energy industry. It becomes difficult because in energy there have been so many myths and misconceptions on what drives energy prices.
We hear politicians blame the oil companies! They are not paying enough taxes! Or they blame the speculators for driving up the price! Yet the truth of the matter is the oil companies and the speculators are not the problem! They are the one creating the solution! The truth is that the hopes for the United States economy have never been higher. Despite the doom and gloom of recent years we are living in a historic time unlike anything that we have seen for generations or perhaps since the early days of oil! In fact, it is being called a revolution! A shale gas and oil revolution! We are at the very beginning of a new era in energy that will reinvigorate our economy and lift us out of this depression. It will create jobs and investment opportunities for years to come. Imagine if you had a time machine, and you could go back and invest in the early days of the industrial revolution, or the early days of Standard Oil and how much money you might have been able to have made? Well you don’t need a time machine because we are there now! We are on the verge of new frontier! A historic time that is going to change our country! A time where we will no longer be dependent on foreign oil but will become an oil exporter! We are on the precipices of this new era not because of some government program, but because high energy prices and the desire to make profits, we have built a better mouse trap!
Sure enough as on cue the AP Reported that U.S. oil output is surging so fast that the United States could soon “overtake” Saudi Arabia as the world's biggest producer. Driven by high prices and new drilling methods, U.S. production of crude and other liquid hydrocarbons is on track to rise 7% this year to an average of 10.9 million barrels per day. This will be the fourth straight year of crude increases and the biggest single-year gain since 1951. The boom has surprised even the experts. The Energy Department forecasts that U.S. production of crude and other liquid hydrocarbons, which includes biofuels, will average 11.4 million barrels per day next year. That would be a record for the U.S. and just below Saudi Arabia's output of 11.6 million barrels. Citibank forecasts U.S. production could reach 13 million to 15 million barrels per day by 2020, helping to make North America "the new Middle East." The last year the U.S. was the world's largest producer was 2002, after the Saudis drastically cut production because of low oil prices in the aftermath of 9/11. Since then, the Saudis and the Russians have been the world leaders
The United States will still need to import lots of oil in the years ahead. Americans use 18.7 million barrels per day. But thanks to the growth in domestic production and the improving fuel efficiency of the nation's cars and trucks, imports could fall by half by the end of the decade. The other thing I spoke about was the promise of natural gas reinventing our manufacturing sector! That we would be getting a new era in U.S. Manufacturing! Well, the Wall Street Journal echoed those sentiments. The Journal writes:
Three decades after being devastated by the closing of steel mills, this gritty river valley is hoping its revival will come from cheap natural gas. The hope doesn't rest on drilling rigs, but on a multibillion-dollar chemical plant that Royal Dutch Shell PLC is considering building here because of a flood of domestically produced natural gas. Community leaders are touting the plant as the first step toward reviving a manufacturing industry many thought was gone for good.
“I never would have expected, that as a region, we'd have a second chance to be a real leader in American manufacturing,” Bill Flanagan, of the Allegheny Conference on Community Development, a regional business group, told a crowd of locals who came to hear about the chemical plant. "Suddenly we're back in the game." It isn't just Beaver County reaping the benefits of cheap gas. Plunging prices have turned the U.S. into one of the most profitable places in the world to make chemicals and fertilizer, industries that use gas as both a feedstock and an energy source. And they have slashed costs for makers of energy-intensive products such as aluminum, steel and glass. “The U.S. is now going to be the low-cost industrialized country for energy," the energy economist Philip Verleger said growth in the United States than the rest of the industrialized world says. "This creates a base for stronger economic."
Natural gas is only part of the story. The same hydraulic-fracturing revolution that is freeing gas from shale formations is being used to extract oil. U.S. oil production is up 20% since 2008, and the U.S. government expects it to rise another 12.6% in the next five years. Economists at Citigroup Inc. earlier this year estimated that increased domestic oil and gas production, and the activity that flows from it, would create up to 3.6 million new jobs by 2020 and boost annual economic output by between 2% and 3.3%. RBOB historic drop, along with falling margins, could mean we are primed for a rebound! Bloomberg News reported that gasoline rebounded in New York on speculation that the longest losing streak in 25 years was exaggerated. Futures climbed as much as 0.6 percent after sinking to a four-month low yesterday. The fuel is down 22 percent this month after Exxon Mobil Corp., Valero Energy Corp. and Citgo Petroleum Corp. started refinery units following outages. Inventories rose in the week ended Oct. 19, while demand fell 5 percent, the American Petroleum Institute said yesterday.
“Refineries are starting units after repairs, indicating supplies will increase and prices may drop more as the U.S. approaches the Nov. 6 presidential election, where incumbent President Barack Obama faces Republican challenger Mitt Romney. Obama supports increasing fuel-efficiency standards for vehicles, while Romney accuses him of impeding oil producers. The International Energy Agency, adviser to 28 advanced economies, said oil prices are too high and threaten to derail the global economic recovery. Gasoline for November delivery advanced as much as 1.42 cents to $2.6192 a gallon in electronic trading today on the New York Mercantile Exchange. The contract settled yesterday at $2.605, the lowest settlement since June 22. The decline was the ninth straight day of losses, representing the longest down streak since August 1987.