Sunday, June 2, 1974. The Forest Brothers.

By Ivo Kruusamägi - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=37550773

Kalev Gustav Arro, age 58, and one of the last Estonian Forest Brothers, was killed in a gun battle with Soviet authorities.

Jigme Singye Wangchuck was crowned King of Bhutan.  He had been king since 1972, but the coronation took place on this day under the direction of the kingdom's royal astrologers.

Algeria ended its partial embargo on the expert of oil to the Netherlands, breaking with OPEC in order to do so.

The African National Congress rejected proposals agreed upon by Methodist Bishop Abel Muzorewa, and later to become the only Prime Minister of Zimbabwe Rhodesia, and Ian Smith, the only Prime Minister of Rhodesia, for a settlement in Rhodesia.

Bishop Muzorewa died in 2010 at age 84, Smith died in 2007 at age 88.

Last prior edition:

Friday, May 31, 1974. The Golan Heights.

Labels: 1970s, 1974, China, Colorado, Golan Heights, Israel, Malaysia, People's Republic of China, Syria, United Kingdom, Vietnam War, Yom Kippur War

Wednesday, January 9, 1974. Oil.

OPEC voted to freeze oil prices for three months.  Saudi Arabia had been willing to reduce them, but Algeria, Iraq, and Iran, had not been.

Ronald and Nancy Reagan upon Reagan's 1966 Gubernatorial victory, and one decade away from his first run for the GOP Presidential ticket.

Actor turned politician Ronald Reagan delivered California's State of the State address, noting the oil crisis but asserting it was an opportunity to develop resources, freeing the US from foreign petroleum.

Tuesday, October 16, 1973. Doubling the price of oil and false peace.

OPEC doubled the price of oil from $2.18/bbl to $5.12/bbl.  It didn't consult with the oil companies before doing so, and in some ways initiated in the modern, post, post World War Two, economy.

$5.12?  Yes, that's what it was.

That would be $33.75 adjusted for inflation.

The UK and Iceland came to an agreement to end the Cod War.

Henry Kissinger and Lê Đức Thọ were awarded the Nobel Peace Prize.  The North Vietnamese negotiation, however, did not accept it, stating:

However, since the signing of the Paris agreement, the United States and the Saigon administration continue in grave violation of a number of key clauses of this agreement. The Saigon administration, aided and encouraged by the United States, continues its acts of war. Peace has not yet really been established in South Vietnam. In these circumstances it is impossible for me to accept the 1973 Nobel Prize for Peace which the committee has bestowed on me. Once the Paris accord on Vietnam is respected, the arms are silenced and a real peace is established in South Vietnam, I will be able to consider accepting this prize. With my thanks to the Nobel Prize Committee please accept, madame, my sincere respects.

And the hits keep on coming. . .

to the local economy, that is.

It seems selfish to lament the state of the economy in  your own state in the midst of a global pandemic, but this is simply extraordinary. 

1.  The Pandemic

First, that pandemic, we just published something on it here: Lex Anteinternet: Governor Gordon and State Health Officer issue sta...:

That more fully stated:

Governor Gordon and State Health Officer issue statewide closure order for public spaces

Governor Gordon and State Health Officer issue statewide closure order for public spaces

CHEYENNE, Wyo. –  Governor Mark Gordon has endorsed a decision by the Wyoming State Health Officer to close public places for a two-week period to help slow the community spread of coronavirus (COVID-19).
The closure order extends through April 3 and includes schools, theaters, bars, nightclubs, coffee shops, employee cafeterias, self-serve buffets, salad bars, unpackaged self-serve food services, gyms, conference rooms and museums. 
“This Governor has never been inclined to overstep local authority, but these are unprecedented times. It is critical that there is uniformity across the state in how social distancing measures are implemented,” Governor Mark Gordon said.
“Wyoming, like all Americans, must commit to reducing the strain on our healthcare system. These are hard measures and they will be difficult for employees and businesses alike, but they are warranted.”
Restaurants will be closed to dine-in food service, but may remain open for curbside take-out or drive-through food service. Under the order, childcare centers will be closed except for those serving essential personnel. 
Dr. Alexia Harrist, state health officer and state epidemiologist with the Wyoming Department of Health, said “We realize this action will be very difficult for many of our residents. But it is an important step to help them avoid becoming ill and to help them avoid spreading COVID-19 to those who are most vulnerable. We should all work together to help keep our friends and neighbors safe.”
Wyoming currently has 18 confirmed cases of COVID-19 and the Wyoming Public Health laboratory has completed nearly 300 tests, as of March 19, 2020. Additional testing is occurring at commercial laboratories.  A nationwide shortage of testing supplies is impacting Wyoming, like all states. Social distancing measures are the most effective means of slowing the spread of COVID-19, according to Dr. Harrist. 
 While most individuals will likely not experience serious illness related to COVID-19, older residents and people with certain health conditions put them at higher risk of developing a serious or life-threatening illness.

Before anyone thinks "oh, it's just a few days, remember that a lot of people who work in "bars, nightclubs, coffee ships. . . " and the like make their money on tips, not so much on their wages.

Indeed, it's a long debated but firmly entrenched aspect of the American economy that the food and beverage industry is exempt from the hourly wage laws, and so people really make up their money in their tips.  A person can argue for and against that. . . you won't be getting any rude disinterested French waiters for example, but it is hard on them in various ways.  When they aren't working, even if their employer keeps paying them (and most won't get paid as their employers won't be able to pay them while their not working, and they can't 'work from home') they're really in a bad way.

So are their employers, I'd note.  In lots of industries people can actually work from home.  Indeed, while I'll take it up in another post, my prediction is that this epidemic provides a push in a technological direction, the longer it goes on, that we'll never come back from. There are already entire industries where almost all of their employees work from home.  Insurance adjusters often do, for example. But right now, a lot of lawyers and their staffs are also.  Once people become acclimated to that, a lot of businesses are going to ponder if they need a central office any bigger than a closet big enough to house a server.

Anyhow, right now a lot of tavern owners and restaurateurs are going to be really hurting.  For that matter, a lot of other small businesses will as well.  While a person can argue that if we'd had a more distributist economy (and I'll do that in some other post) we might not be i this situation now, we're in it, and smaller businesses have less to fall back on in many instances.

2.  Oil is in the dumper

As if that isn't bad enough, yesterday oil was at $22.00/bbl.

Nobody on earth can make money on oil at that price.  It's absurd.  But it's really going to be hard on the U.S. Petroleum industry if it keeps up much longer.  Layoffs are already happening in Texas, I'm told.

3.  Coal layoffs

One of the mines laid off 60 people last Wednesday, the Tribune reports.

So the economy in Gillette, which is part of Wyoming's overall economy, must be reeling.  Low oil, coal layoffs, and Covid-19. 

And of course coal layoffs come due to low production, and that means that funding the schools, which of course are closed right now, becomes all the harder.  When those schools open back up, I have to wonder how many parents are pondering their next move, literally.

Oil closes under $30.00 bbl

Yesterday, that is.

The last time oil was that low was December, 2003.  And in real terms, it's lower now than it was then.

Indeed, the actual last time oil was as low as it currently is was in 1999.

Now, in the 1990s and the 2000s, when oil reached its current low mark, it didn't stay there.  In fact, it shortly thereafter rocketed skyward.  In the late 90s price crash the price went up to $40.00 bbl, which is more then than now, fairly quickly.  In the 2003 crash it soon recovered and over time went up to $151.00 bbl, a price that's unlikely to be the rebounding price here.

And there is likely to be a rebound.  Saudi Arabia, which is depressing the price, actually can't meet its expenditures if the price is lower than $80 bbl.  Nobody knows how low Russia can go, but the Saudis are betting that it can't stay this low long.  They may be right.

The Russians seem to be betting that they can, and there's additional speculation that they may be aiming to damage the American oil industry, which needs prices to be $50 bbl.  The US is the world's largest oil producer and is an energy exporter once again, but if we need $50, and the Russians can stay well below that, it'll result in a lot of American production being shut in and the Russians may gain the market.

Which leads to an additional theory, although one I'd discount, which is that the Russians hope to be low enough to hurt the Saudis and get part of their share while not so low as to hurt the American market, which would boost the OPEC share.

We'll see.

Anyway you look at it,a prolonged oil war between Russia and Saudi Arabia, an Oligarchy v a Monarchy, isn't good for American oil production and its really bad for the state.

Of course war, which this is only by analogy, is also bad for those who engage in them, and the outcomes are never predictable.  The US is never good at waging sustained war, as recent events once again have demonstrated, as people tire of them and in a democratic society they vote them out, basically.

Despotic countries are better at keeping wars running, but not necessarily winning them. Nazi Germany kept World War Two running well past the point of no return for the state.  Imperial Japan had lost the war prior to Iwo Jima.  Imperial Germany kept the war running right up to the point of internal revolution which in turn destroyed it.

The current head of Saudi Arabia is jailing family opposition to his rule and we know that Putin doesn't tolerate very much dissent.  But there are a lot of Sauds who depend on oil checks to evade working and there's plenty of Russians whose dachas depend on petrobucks.  At the current prices, they'll be hurting.  And nobody knows where that leads.

The King has fallen? The end of Saudi Arabian dominance in petroleum?

Yesterday we reported on this:

Lex Anteinternet: Petroleum. Happy Days Are Here Again?: Is it back? "Oil, that is. . . black gold. . . Texas Tea. .  " Well maybe.  It's sort of looking that way. Oil is ho...

Also, yesterday, the New York Times reported:

HOUSTON — A substantial rise in oil prices in recent months has led to a resurgence in American oil production, enabling the country to challenge the dominance of Saudi Arabia and dampen price pressures at the pump.

The success has come in the face of efforts by Saudi Arabia and its oil allies to undercut the shale drilling spree in the United States. Those strategies backfired and ultimately ended up benefiting the oil industry.

That would be, quite frankly, a huge American victory and a major defeat for the Petroleum Kingdom if its correct.

And it very well may be.

All throughout the price collapse of a couple of years ago was a thesis, but not the only one, that the drop in price was an effort by Saudi Arabia to crush the American petroleum industry, resurgent on technological advancements and increased prices.  If the NYT is correct, and it very well may be, this is a huge development. The potential end of OPEC dominance in oil, and a new, middle price, regime in the petroleum industry with the United States and Canada as major petroleum oil powers.

Lex Anteinternet: And the Economic news gets starker.

I haven't run one of these grim items on the local economy for a month now, with this being the last one:

Lex Anteinternet: And the Economic news gets starker.:

Lex Anteinternet: Lex Anteinternet: Lex Anteinternet: Lex Anteintern...: And now the price of oil is down to. . . $29.00 bbl.

Wyoming sweet crude is down to about $19.00 bbl.  Wyoming sour crude is
now down to about $9.00 bbl.  It was at $76.00 bbl in June 2014.

Fairly clearly, those are not economically sustainable prices.

There were several intervening bad stories in the meantime, but given at there's been so many, you reach a "what's the point" type of location.

This past week, however, prices went up, in spite of the news that Iran was about to place 4 bbl/day on line.  Some of the OPEC countries and Russia were beginning to get in line, and there was a day when there was a sharp escalation of the price.  Of course, sharp in this context doesn't put the price up around $50/bbl where it seems to need to be, but it was hovering around $40/bbl.

Yesterday, however, it was sinking again.

Today we read in the paper that Ultra has hired Kirkland & Ellis, the bankruptcy firm that shows up in all of these bankruptcies and which we recently read that Chesapeake was consulting with (although they say they aren't taking bankruptcy).  And Cloud Peak (coal, but still in good shape) and Marathon (which downsized earlier) posted losses for the last quarter.

When the price started to climb a bit I thought that perhaps it had sunk to the pint where the low prices were no longer sustainable.  I could have been premature on that.

The new economic normal?

I started this post off about a week ago, and then let it set as I was traveling for work.  In the meantime OPEC had their meeting, and I've just posted on that. This post came back to mind at that time.  According to the Tribune, Wyoming's economy is now flat.  With the OPEC failure to put in place caps, I'm worried that it won't remain flat for long, however, which is what I had originally addressed here (i.e., a flat economy, although I thought that analysis somewhat flawed even prior to the OPEC story).

Founder of the House of Saud. Who would have guessed that the Saudi kingdom would prove so critical to the economy of a Rocky Mountain state?

Unemployment isn't increasing, and employment isn't increasing in the state either.  A state employee terms it the "new normal".

Except, it's flat in part because of construction jobs.

And those jobs have been a largely fueled by school construction.

 

 A series of major school construction projects has been keeping the state's unemployment figures from rising.  They won't go on forever.

Which is provided for by coal severance taxes, a dropping revenue.

And by tourism. Tourism is apparently up.  Which isn't surprising really, as with fuel prices in the basement, we should see more traveling, although apparently there  hasn't been much of an increase in fuel consumption nationally.  However, with gasoline now down below $2.00/gallon, we'll see if that holds.

$2.00 per gallon, by the way, is something I was frankly stunned to see.

Now, in the week or so that I've delayed on this story, I've actually seen gasoline at $1.87.  It'd dropping like a rock.

And I'm going on record right now that its my prediction that we'll see it go as low as $1.00 in the next two years.

Even as it is, right now, in real terms, it has to be as low as its ever been, and I'd think that should make air travel and ground travel much cheaper. We oddly haven't been seeing an increase in fuel consumption as the price first stabilized, and then fell, but I'm guess that we will now somewhat.  Or at least it'll begin to have a nationwide deflationary effect which will make the American dollar much stronger and create a real rise in earning power in everyone's bank accounts.  Unless, of course, you were working in a state, like I am, where we depend on the coal and petroleum industries for our economy.

Anyhow, this news time line is very familiar to those of us who lived through the early 1980s here. As before, there was denial, as in "this is only temporary", which ultimately yields to "oh, it won't be that bad", and followed by where we now are, which is "tourism will save us".

Tourism is important to the local economy, but it has problems as a n economic sector, not the least of which is that the wages it generates tend to be low. An added problem, rarely addressed, is that tourism and the mineral industry can be at odds which each other, at least to some degree. And the fact that the mineral industry is the high paying end of the economy makes quite a difference in the local impact of the various types of employment.

 

World War Two era poster discouraging vacation travel.  We're in the opposite position.

That the boom would end was something that those with a sense of history always knew.  A belief was out there that it was going to last decades, but that has never proven to be the case. What is unusual, however, is that the end of this boom was caused by a pricing determination from overseas, with Saudi Arabia seeking to keep its market share.  A boom had been fueled by OPEC oil policies in the past, but never a bust.  Whether the Saudi gamble will pay off for them isn't yet know, so the ultimately impact on the local economy isn't either.  But it is scary.

Petroleum and coal, it should be noted, have been part of the state's economic engine since the 1890s, but agriculture was the main sector of the economy for over half the 20th Century.  Petroleum only took that place in the 1960s.  This is significant as agriculture has actually lead the economic boom in some US states, and its proven to be an industry that not only has remarkable staying power, but staying power in a modern economy.  But it's really dwindled as a sector of the Wyoming economy in recent decades, all while remaining the romantic sector of the state's image.  In some ways, agriculture is really the reason for our tourism industry, whether that's realized or not, as range cattle production is the reason for the range being what it is.  That's something that the state should remember, and perhaps taking a second look at agriculture and what it can, and does, for the state, should be done.  It certainly can play a bigger role than it currently does, and its proven to have real staying power.

 

The cow, fabled in our cultural story, but often undersold in the post World War Two economic story of the state. Time to consider agriculture's position once again?

And the oil price war goes nuclear. . . or maybe solar.

Given that so much attention has been focused on other things, many may have missed that Friday OPEC, lead by Saudi Arabia, failed to set caps on oil production by it members.

We are now in an uncontrolled oil market for the first time since the early 1970s, and the production trend is up. I wrote earlier on the Saudi boost on production, and what it might be about, but what seems fairly clear now is that part of it was designed to put a stop to increased US and Russian production.  The Saudi effort did at least slow the upward US trend but it didn't return Saudi market share to the pre US boom level and US production, if not exploration, has remained surprisingly high.  The Saudis may simply have missed their chance to achieve their goal without it taking a long time, and without it ultimately being pretty costly. 

 Prices have been going down, and given this development, they're going to keep going down. My guess is that they could go down quite a bit.  I saw gasoline for sale for $1.87 today for the first time in years. It's hard to imagine. This has to start having some sort of deflationary effect on prices in general at some point.  And its  hard to imagine that it doesn't result in an increase in domestic consumption, although this doesn't really seem to be occurring.

Indeed, the question would seem to be now if we are about to enter a deflationary period. We haven't, but with this particular cost going down, some impact has to occur.  It will not stand to be a disastrous one, like the deflationary period of the Great Depression, and in fact it would appear that except for the US energy sector, it will likely be a positive one for most of the world's economy, assuming that the price continues to go down or that it stabilizes.  It will be hard, however, on the US energy industry, although the irony is that with so much new production in North America having done on line, the US now has the ability basically to absorb increases in price which in turn might keep the Saudis from allowing that to occur.

Some energy analysts have been claiming that we're now in a new environment in terms of oil production. This seems to be becoming very much the case.  The Saudis are maintaining a dedicated effort to keep their share of the world market, but at a great loss to themselves.  Global production has reached the point where they don't have much choice, if that's what they want to do.

Lex Anteinternet: Lex Anteinternet: Lex Anteinternet: And the band p...

Lex Anteinternet: Lex Anteinternet: Lex Anteinternet: And the band p...: Today the price of oil actually declined below $40/bbl.  This is probably temporary, but how amazing.

And indeed it did prove to be temporary, but perhaps signalling how down in the dumps and perhaps permanent these price depressions may be (as in economic permanent, that is long term), a jump in the price to $45-$47/bbl was due to Saudi Arabia sending troops into northern Yemen in order to keep rebels there from consolidating their forces.  So it's regional instability in the Middle East, with a major oil producer, i.e., the one keeping the price low, that's caused the price to jump.

On the other hand, it turns out that Ecuador has been producing  oil below its cost.  It's oil has been selling for $30/bbl, and they only break even at $39/bbl.  Its crazy for them to sell it at that cost, but there must be some internal economic reason for them to keep selling it at a lost.  In most real free markets, they'd shut their wells in.  Perhaps they will, and indeed, they'll have to, resulting in taking that oil off the market for a time.