Yesterday’s anecdotes released vis-à-vis the Fed’s Beige Bookare not difficult to reconcile…
With oil prices up to $70 per barrel in the first half of 2009 but recently trending down, oil production was reportedly flat in June and early July in the Cleveland, Minneapolis, and Kansas City Districts and up slightly in Dallas and San Francisco. Contacts in Atlanta indicate that the number of rigs operating in the Gulf of Mexico had fallen by half year over year while in Dallas the number of working rigs was up slightly.
Natural gas prices continue to fall, discouraging drilling in the Kansas City, Dallas, and San Francisco Districts. Kansas City energyproducers report financial strains and ar ecutting headcounts selectively, while contacts in Dallas observe much excess capacity and weakdemand for energy services. In response to weak demand from the utilities, coal prices inthe Cleveland District have fallen 50 percent since early 2009, and coal production, jobs and hours are down; capital spending has fallen tominimum maintenance levels. In Minneapolis,by contrast, new wind projects have been announced. [emphasis ours]
In other words, money from the productive side of the energy complex is being, shall we say… redistributed… to the unproductive side. That is not good. Unless gathering en masse singing kum-ba-yah generates enough heat to replace what is about to be blown, by government fiat, at a Rube Goldberg, hydrocarbons will surely move higher down the road.
Bottom line, Btus are cheap today, but eventually, this is going to catch up to us. Thus, while we are nearby dyed-in-the-wool bears, in the long-run (where we will be dead anyway… thank God) here at we have no choice but to be bullish.
Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.