Inflation Versus Interest Rates

[Bobby H]

The United States already drills and refines nearly all of its own oil and gasoline. In recent years the US has been a net exporter of oil -meaning we drill more than we use domestically.

Here's the thing: OIL IS A GLOBALLY TRADED COMMODITY. The US government has very little control over oil prices. The government cannot set those prices directly. Futures traders on Wall Street have far more effect on that than any loud-mouth Senator or President.

The price of oil, again, is set largely on the balance of supply and demand. Various factors can and do affect supply. Other factors affect demand. The price of gasoline hitting 99¢ per gallon was a result of the oil industry hitting a collapse. Demand absolutely cratered due to pandemic lockdowns. There was too much supply. A literal traffic back-up of oil tankers jammed off the Gulf Coast because there was nowhere to store all of that oil at the time. Oil industry people coined a new term "contango" to describe the problem.

When oil prices collapsed and briefly went negative it put a number of smaller oil drilling companies here in Oklahoma, Texas and elsewhere out of business. Big companies got hurt pretty bad by that oil bust. The industry has been trying to recover over the past 2 years. They've been in no hurry to "drill baby drill" because they don't want to be caught flat footed again. Not even with Russian oil taken off the market. The oil industry is also dealing with labor shortages because a lot of guys got fired in the last bust cycle and haven't returned.

Another thing that hurts American oil production and keeps prices stubbornly high is our limited refining capacity. It is extremely difficult to build and open a new oil refinery anywhere. Not only do you have lots of government regulations and red tape to conquer, but the NIMBY factor is an even worse hurdle. Anyone who says they don't mind an oil refinery opening near their home is lying.

As for the government leases thing, that's a red herring. There's nearly 10,000 leases on government land the oil exploration industry is not bothering to use. Existing high production "oil patches" like the Permian Basin or Bakken Shale have plenty of room for more rigs. The oil industry is simply not going into over-production mode because they don't want to risk going broke again. They're profiting more off of producing only so many barrels per day.

 

[dypinc]

Step 1 should be stop printing money and reduce governments spending, instead 370 billion of the "inflation reduction act" will be used for "climate change"

We will have "climate change" no matter how much money the government throws at it, but it will make the HOAXERS happy!

 

[Notarealsignguy]

There is no easy fix now. Personally I think a lot of the inflation is due to huge consolidations of companies both producers and sellers combined with them being publicly traded. They had a huge bump in post covid revenue and shareholders/board members do not want to hear anything about revenues falling. So as post covid demand dropped, like Amazon has seen, they raise the prices so the lower demand does not effect them monetarily. There is less competition today which lowers pricing pressures and really makes the increases easier to do than it was 40-50 years ago. When any upper level manager, CEO, VP whatever, lowers revenue projections, they get called on the carpet and told that their lower projection is not an option. If it does come to fruition, they likely get fired or pressured into quitting. Very political at the top

 

[rjssigns]

The United States already drills and refines nearly all of its own oil and gasoline. In recent years the US has been a net exporter of oil -meaning we drill more than we use domestically.

Here's the thing: OIL IS A GLOBALLY TRADED COMMODITY. The US government has very little control over oil prices. The government cannot set those prices directly. Futures traders on Wall Street have far more effect on that than any loud-mouth Senator or President.

The price of oil, again, is set largely on the balance of supply and demand. Various factors can and do affect supply. Other factors affect demand. The price of gasoline hitting 99¢ per gallon was a result of the oil industry hitting a collapse. Demand absolutely cratered due to pandemic lockdowns. There was too much supply. A literal traffic back-up of oil tankers jammed off the Gulf Coast because there was nowhere to store all of that oil at the time. Oil industry people coined a new term "contango" to describe the problem.

When oil prices collapsed and briefly went negative it put a number of smaller oil drilling companies here in Oklahoma, Texas and elsewhere out of business. Big companies got hurt pretty bad by that oil bust. The industry has been trying to recover over the past 2 years. They've been in no hurry to "drill baby drill" because they don't want to be caught flat footed again. Not even with Russian oil taken off the market. The oil industry is also dealing with labor shortages because a lot of guys got fired in the last bust cycle and haven't returned.

Another thing that hurts American oil production and keeps prices stubbornly high is our limited refining capacity. It is extremely difficult to build and open a new oil refinery anywhere. Not only do you have lots of government regulations and red tape to conquer, but the NIMBY factor is an even worse hurdle. Anyone who says they don't mind an oil refinery opening near their home is lying.

As for the government leases thing, that's a red herring. There's nearly 10,000 leases on government land the oil exploration industry is not bothering to use. Existing high production "oil patches" like the Permian Basin or Bakken Shale have plenty of room for more rigs. The oil industry is simply not going into over-production mode because they don't want to risk going broke again. They're profiting more off of producing only so many barrels per day.

So what happened to us being energy independent and a net exporter to the "resident" begging the Saudis for oil. Even went to Venezuela.

Government can't set the prices but they sure can F#$k with them, or haven't you noticed?

Basic economics for the oil companies. Why bother to drill, explore, build refineries when there is no ROI based on the current administrations restrictive policies?

You can talk about all the economic principles you want but it doesn't take a Phd to understand exactly what happened.

Many of use are very fortunate that we are somewhat insulated from the current economic situation.
You may want to get out in the world and talk to the people having trouble putting food on the table because of regressive economic policies.
Some of my students are in that exact situation and it's hard to deal with. They want to make a better life for themselves but sometimes it comes down to putting food on the table or gas in their car to get to work.

Would be a whole different situation if everyone had to experience that.

 

[Bobby H]

So what happened to us being energy independent and a net exporter to the "resident" begging the Saudis for oil. Even went to Venezuela?

I repeat: Oil is a GLOBALLY TRADED COMMODITY. Do you think that giant complex of refineries next to Houston exists only to refine imported oil? American oil producers like making money off oil exports. If buyers elsewhere in the world are willing to pay more for their product and that difference more than offsets the shipping costs the American producers will export it.

That Keystone XL pipeline project, which has been a political football, would do absolutely nothing to help lower domestic gasoline prices. That project is all about making it easier for North American oil producers to pump oil down to Houston to export elsewhere.

Government can't set the prices but they sure can F#$k with them, or haven't you noticed?

I mentioned some of the issues in my previous post, like with the difficulty of opening any new oil refineries. There's certainly lots of government regulations. Again, the harder thing is local push-back. The NIMBY factor. There are very few areas in the country that are open to new refinery projects. Blame it on environmentalists or members of a certain political party all you want. Not in my back yard is the bigger issue. It's probably worse than ever with the constant barrage of Camp Lejeune scandal commercials on TV.

You may want to get out in the world and talk to the people having trouble putting food on the table because of regressive economic policies.

Don't even try to talk to me as if I don't know how people are struggling. I'm not some rich politician. But I do know a few things about the oil business since I have some friends and relatives trying to make a living in it. One of my cousins got laid off by Halliburton in this last oil bust. Now they're wanting him to come back, but he's hesitant to quit his current job to do so. People act as though America's oil industry is some singular, greedy monster when gasoline prices get high. But the American public doesn't give a tinker's damn when the industry goes bust and thousands of those blue collar people lose their jobs. They just enjoy the cheap gasoline and don't think any farther past that, like 2 years ago when the price of oil fell to zero and gasoline was a buck a gallon.

 

[Stacey K]

Just a general statement about how to save money when times are tough, not directed at all towards RJ's students.

There's one class they should require every high school senior to take. It's called "Math for Everyday Living". In this class you clipped out a job in the newspaper, you clipped out an apartment. The job had to be something that at 18 you could get hired for. The teacher had us calculate our taxes and he had estimated electric, heat and water. We then had X amount left. We were required to literally go to the grocery store and make a list of what we would buy, and track all our mileage so we could track our gas spending. We did this for the entire quarter while also learning about checkbooks, 401K's, the stock market, etc.

You learn REAL QUICK what the world is all about. The only way to pass the class was to get your budget under control. BEST CLASS EVER. It's not available at our high school but you can bet I went over all of this with my kids!!! They have been involved with my "saving money scheme" their entire lives. Making laundry soap, washing in cold, hanging dry, making meals vs. eating out, growing your own food, canning, freezing, etc. We do go out and we do use the dryer but there's plenty of times we don't. And I spend under $20 a year on laundry soap for 3 people. I bought a book when my kids were little that really helped me as a stay at home mom to stay home for as long as possible.

All of this also reduces emissions for those climate people.

 

[Notarealsignguy]

Nobody ever says let me make more so I can lower my prices. Oil and energy products are commodities with a cartel thrown in the mix. Production is controlled by private companies. Politicians don't have any power over them but like everything else in politics, they want to to take credit for things when they go right, even though they had nothing to do with it and point fingers at their opponents when it goes bad. Stop listening to the blowhards, there are plenty of oil leases sitting unused and nothing is stopping additional refining capacity to be built besides corporate choice. Now if oil and refining was nationalized, then they would and could have control over it but it's not so they dont.

 

[Bobby H]

Big oil companies, such as Shell, BP, etc are publicly traded. The same goes for many of the companies more geared to oil exploration, like Halliburton (which began nearby in Duncan, OK). There are lots of smaller, private companies too.

American oil producers would really like to build and open new refineries. The existing situation is quite a bottleneck on production. As I keep saying, opening a new refinery is not easy to do. Under current conditions it would be an extremely costly endeavor.

I don't see how anything would be gained off of nationalizing the oil industry in America. Production costs would still be the same. If the government was running the operation and having to subsidize it to make gasoline prices lower we would end up making up the difference in higher taxes.

There's one class they should require every high school senior to take. It's called "Math for Everyday Living".

It seems lots of young people learn Math for Everyday Living the hard way. Here in my town a bunch of them learn it trying to move out of Mom and Dad's house. Wage scales are absurdly low in much of Oklahoma (especially here). Minimum wage is still $7.25 per hour and the minimum for tipped workers is $2.13. Lawton has a shortage of housing overall, bad enough that Army personnel getting stationed at Fort Sill struggle to find anything decent to rent/buy. That has made rent prices soar.

Service sector businesses here, such as restaurants, can't get enough workers. It's not because a bunch of people just don't want to work. Lawton has lost thousands of lower income people over the past couple or so years because they just can't survive here. The "crappy" jobs they can get don't pay enough to make ends meet. They've moved to other cities hoping to find a more survivable situation. The worker shortage has also been worsened due to people in certain demographics either being forced to the sidelines or choosing to "opt out." Lots of older people eligible to draw Social Security have left the workforce for various reasons (fear of covid, customers in stores being violent jerks, etc). A lot of married women with young kids have been forced to the sidelines due to the sky high costs of day care. Why earn a second paycheck if most of it will get eaten by day care?

 

[Boudica]

Just a general statement about how to save money when times are tough, not directed at all towards RJ's students.

There's one class they should require every high school senior to take. It's called "Math for Everyday Living". In this class you clipped out a job in the newspaper, you clipped out an apartment. The job had to be something that at 18 you could get hired for. The teacher had us calculate our taxes and he had estimated electric, heat and water. We then had X amount left. We were required to literally go to the grocery store and make a list of what we would buy, and track all our mileage so we could track our gas spending. We did this for the entire quarter while also learning about checkbooks, 401K's, the stock market, etc.

You learn REAL QUICK what the world is all about. The only way to pass the class was to get your budget under control. BEST CLASS EVER. It's not available at our high school but you can bet I went over all of this with my kids!!! They have been involved with my "saving money scheme" their entire lives. Making laundry soap, washing in cold, hanging dry, making meals vs. eating out, growing your own food, canning, freezing, etc. We do go out and we do use the dryer but there's plenty of times we don't. And I spend under $20 a year on laundry soap for 3 people. I bought a book when my kids were little that really helped me as a stay at home mom to stay home for as long as possible.

All of this also reduces emissions for those climate people.

That sounds like an awesome class! It should be a requirement to graduate high school.

...those climate people?

 

[rjssigns]

I repeat: Oil is a GLOBALLY TRADED COMMODITY. Do you think that giant complex of refineries next to Houston exists only to refine imported oil? American oil producers like making money off oil exports. If buyers elsewhere in the world are willing to pay more for their product and that difference more than offsets the shipping costs the American producers will export it.

That Keystone XL pipeline project, which has been a political football, would do absolutely nothing to help lower domestic gasoline prices. That project is all about making it easier for North American oil producers to pump oil down to Houston to export elsewhere.



I mentioned some of the issues in my previous post, like with the difficulty of opening any new oil refineries. There's certainly lots of government regulations. Again, the harder thing is local push-back. The NIMBY factor. There are very few areas in the country that are open to new refinery projects. Blame it on environmentalists or members of a certain political party all you want. Not in my back yard is the bigger issue. It's probably worse than ever with the constant barrage of Camp Lejeune scandal commercials on TV.



Don't even try to talk to me as if I don't know how people are struggling. I'm not some rich politician. But I do know a few things about the oil business since I have some friends and relatives trying to make a living in it. One of my cousins got laid off by Halliburton in this last oil bust. Now they're wanting him to come back, but he's hesitant to quit his current job to do so. People act as though America's oil industry is some singular, greedy monster when gasoline prices get high. But the American public doesn't give a tinker's damn when the industry goes bust and thousands of those blue collar people lose their jobs. They just enjoy the cheap gasoline and don't think any farther past that, like 2 years ago when the price of oil fell to zero and gasoline was a buck a gallon.

I'm simple and my mind works like millions of others in America. We were just fine two years ago. The end.

 

[Fred Weiss]

The main thing on my mind is that the Fed, by raising interest rates, is choosing and targeting one group ... those who are borrowing, over a different group ... those who are not borrowing, in the name of reducing the effects of inflation. It is, IMHO, inherently unfair for the Fed to do this.

 

[netsol]

The same people that told you to stay home for 2 weeks to flatten the curve

yes, victor, it is DAMN NEAR flattened

 

[Texas_Signmaker]

The main thing on my mind is that the Fed, by raising interest rates, is choosing and targeting one group ... those who are borrowing, over a different group ... those who are not to borrowing, in the name of reducing the effects of inflation. It is, IMHO, inherently unfair for the Fed to do this.

Yup, they are targeting you. Smart money would of locked in a rate when they were at their lowest levels in history. You are the only one to blame for your own mistakes.

Just make up for it by charging more for your 1990s clipart.

 

[Fred Weiss]

Yup, they are targeting you. Smart money would of locked in a rate when they were at their lowest levels in history. You are the only one to blame for your own mistakes.

Just make up for it by charging more for your 1990s clipart.

Well my hat is off to those of you that are able to get lenders to give you such good terms and choices. In my case, because the Mrs. and I can only show social security income and a small additional income from clipart, we found it near impossible to get our home refinanced to take advantage of the doubling of value we saw in recent times. Accepting an ARM at around 1% at the time was our best option. We are currently at 5.125% and not looking forward to the end of month statement due in a couple of days.

 

[Bobby H]

The main thing on my mind is that the Fed, by raising interest rates, is choosing and targeting one group ... those who are borrowing, over a different group ... those who are not to borrowing, in the name of reducing the effects of inflation. It is, IMHO, inherently unfair for the Fed to do this.

The Fed had no choice but to raise interest rates. One factor that contributed to the inflation rate getting so high: the Fed farted around too long before finally taking action. This is shades of the mid 2000's all over again when Alan Greenspan kept the overnight lending rate at zero for way way too long. That fueled a housing bubble that, when it burst, plunged the global economy into a deep recession. The government passed legislation to try to prevent such a housing bubble from growing again, but most of those regulations were reversed over the years. So here we are AGAIN.

Once again America's housing market is severely over-heated with prices rising way beyond levels that incomes can justify. This problem is being inflamed by the fact America's real estate market has turned into a playground for global investors. The market imbalances are worsened more by idiotic local zoning practices. There is an extreme bias in favor of R-1, single family unattached homes. The only exception is mixed use commercial/residential in city centers, but nearly all those housing units are "luxury" priced (which makes the whole "new urbanism" ideology a big stinking lie). Next to nothing is getting built for young adults with modest incomes. When a developer announces any intention to build such a development all hell breaks loose. It's not housing for people on welfare. But to other property owners it might as well be.

The cost of housing and general cost of living affects everything else in the broader economy. We work in the sign industry -an advertising related industry. The advertising industry is pretty vulnerable to economic downturns. If ordinary people are having to burn more and more of their incomes on the basics they're not going to be able to spend on much of anything else. 70% of America's economy depends on consumer spending. The sign industry depends on businesses with store fronts. If the foot traffic at brick and mortar businesses falls off those businesses will cut back on things, like buying or maintaining signs.

 

[Texas_Signmaker]

Well my hat is off to those of you that are able to get lenders to give you such good terms and choices. In my case, because the Mrs. and I can only show social security income and a small additional income from clipart, we found it near impossible to get our home refinanced to take advantage of the doubling of value we saw in recent times. Accepting an ARM at around 1% at the time was our best option. We are currently at 5.125% and not looking forward to the end of month statement due in a couple of days.

An ARM is not the only mortgage option. You know what you're doing by taking an arm, and you know it's a matter of time before that will go up. If 1% ARM was the only way you could of afforded the house... You bought too much house. Did you know when you got the ARM that you would age and retire? It's excuses for poor financial decisions and you blame the government for targeting you?

 

[Fred Weiss]

Let me spell my situation out in greater detail. I had been collecting social security for about twelve years and the Mrs. for about seven years. I had income from sign making, Signs 101 and clipart sales. With the sale of Signs 101, we decided to relocate to Washington from Florida. I purchased our current home five years ago using my VA eligibility. The price was $258,000. A few years later the estimated value had increased to $500,000. I wanted to access the newfound equity and sought out a second mortgage but had no offers.

So we ended up with a refinance of the first mortgage, giving up the low fixed rate VA loan and accepting a thirty year ARM that was still at a low interest rate. That rate has remained low until the Fed began its efforts to control inflation. The result is that we have seen our rate increase proportionally as rates went up. So we now pay higher prices due to inflation along with a 500% higher amount of interest on our home mortgage. Thus, as a borrower, we are being targeted while non-borrowers have no such burden.

 

[Texas_Signmaker]

Su

Let me spell my situation out in greater detail. I had been collecting social security for about twelve years and the Mrs. for about seven years. I had income from sign making, Signs 101 and clipart sales. With the sale of Signs 101, we decided to relocate to Washington from Florida. I purchased our current home five years ago using my VA eligibility. The price was $258,000. A few years later the estimated value had increased to $500,000. I wanted to access the newfound equity and sought out a second mortgage but had no offers.

So we ended up with a refinance of the first mortgage, giving up the low fixed rate VA loan and accepting a thirty year ARM that was still at a low interest rate. That rate has remained low until the Fed began its efforts to control inflation. The result is that we have seen our rate increase proportionally as rates went up. So we now pay higher prices due to inflation along with a 500% higher amount of interest on our home mortgage. Thus, as a borrower, we are being targeted while non-borrowers have no such burden.

Fred, you made some poor financial decisions, just admit it. I am a borrower and my rates are the same. You seem to be blaming others for your financial struggles. Did you vote Biden? If so, I'll give ya a pass.

 

[dypinc]

Su


Fred, you made some poor financial decisions, just admit it. I am a borrower and my rates are the same. You seem to be blaming others for your financial struggles. Did you vote Biden? If so, I'll give ya a pass.

That just the problem nobody voted for Biden and now we are seeing the real voting with feet and pocketbooks.

 

[Notarealsignguy]

Big oil companies, such as Shell, BP, etc are publicly traded. The same goes for many of the companies more geared to oil exploration, like Halliburton (which began nearby in Duncan, OK). There are lots of smaller, private companies too.

American oil producers would really like to build and open new refineries. The existing situation is quite a bottleneck on production. As I keep saying, opening a new refinery is not easy to do. Under current conditions it would be an extremely costly endeavor.

I don't see how anything would be gained off of nationalizing the oil industry in America. Production costs would still be the same. If the government was running the operation and having to subsidize it to make gasoline prices lower we would end up making up the difference in higher taxes.



It seems lots of young people learn Math for Everyday Living the hard way. Here in my town a bunch of them learn it trying to move out of Mom and Dad's house. Wage scales are absurdly low in much of Oklahoma (especially here). Minimum wage is still $7.25 per hour and the minimum for tipped workers is $2.13. Lawton has a shortage of housing overall, bad enough that Army personnel getting stationed at Fort Sill struggle to find anything decent to rent/buy. That has made rent prices soar.

Service sector businesses here, such as restaurants, can't get enough workers. It's not because a bunch of people just don't want to work. Lawton has lost thousands of lower income people over the past couple or so years because they just can't survive here. The "crappy" jobs they can get don't pay enough to make ends meet. They've moved to other cities hoping to find a more survivable situation. The worker shortage has also been worsened due to people in certain demographics either being forced to the sidelines or choosing to "opt out." Lots of older people eligible to draw Social Security have left the workforce for various reasons (fear of covid, customers in stores being violent jerks, etc). A lot of married women with young kids have been forced to the sidelines due to the sky high costs of day care. Why earn a second paycheck if most of it will get eaten by day care?

You are correct. One thing though, expense is relative. I guarantee you that the ROI on a new refinery is something to brag about. Problem is, when tax rates are stupid low, like now, there is absolutely no incentive to invest money in anything. Shareholders want the money while it's cheap.
It has nothing to do with regulations, politics etc. There just isn't a significant monetary incentive for oil companies to invest right now. Just ignore politics and think about it. People are getting snowed with the rhetoric.