"Thin Diesel"
by Addison Wiggin
"There is no energy crisis, only a crisis of ignorance.”
– R. Buckminster Fuller
"Collectively, investors in Apple, Microsoft, Amazon, Alphabet and Meta watched $700 billion in market cap evaporate between Tuesday and the open today. By contrast, Tesla gained about a percent on trading today. Elon Musk invited his team of Tesla coders to the Twitter headquarters to oversee the outgoing gang given Musk’s successful completion of the deal we wrote about yesterday. And in the many daily missives before.
What’s grabbing our attention today however is the impending diesel shortage in the U.S. Diesel, as you may know, is a “dirty” fuel that gets pumped into cars and big trucks, and is used for heat and manufacturing. And basically powers the dirty part of the economy. For some reason, the president just noticed on October 19 that we’re running low on the stuff.
According to another Orwellian titled government agency, The U.S. Energy Information Administration (EIA) said earlier this week on October 21, “stockpiles” of diesel and “other distillate fuel oils” are at the lowest for this time of year since 1982. Other estimates put it as low as last seen in 1954 – the lowest level since records started getting niggled in 1945, right after World War II.
Why do low stockpiles of diesel matter? Well, for folks who drive diesel cars, like one of our colleagues here at the Wiggin Session, the price per gallon has leapt to $5.69. Luckily, we mostly have a post-pandemic work from home ethic.
The other reason is inflation… the bugaboo Jay Powell, chairman at the Federal Reserve, thinks he can tame by raising interest rates. “The problem now,” however, our friend Sean Ring at the Rude Awakening pointed out some six weeks ago, “is that inflation expectations are embedded in the supply chain. And expectations don’t turn on and off like a light switch.” Mr. Ring continues.
Fuel oil, better known as diesel, is still up 75% over last year. Sure, you may feel happy, temporarily, that gasoline is cheaper at the pump. The problem is that taking your car to pick up supplies is the last link in a chain where all other links are connected with diesel. Some still think the situation is salvageable without creating too much mess.
Our friend, Bill Bonner elaborated, in our last Wiggin Session. I’d asked him what he expects to be our next biggest challenge as investors would be. Bill’s response: "I expect an energy crisis. But energy crises have a way of leaking out into other kinds of crises. Our whole economy in the United States runs on diesel fuel. Trucks deliver stuff, and trucks run on diesel fuel. Trucks run on diesel fuel to deliver bread and milk, everything else that we eat. If there were a big crisis in diesel fuel, the shortages, all of a sudden. We've seen how shortages can happen.
Then there could be other shortages such as compounds and electricity goes out and you can't pump the diesel fuel. So anyway, I'm just warning people that it's dangerous for government bureaucrats to interfere in critical industries like this. They've been handing out money, wasting money, doing stupid wars for a long, long time. But this is the first time they have interfered with the very thing that makes it possible for eight billion people to live on Planet Earth. That thing is energy. And these guys don't know anything about energy, except they don't like it. They want it to come from windmills. Well, good luck on that."
In the banter following the president’s awakening that diesel shortages have run down a 25 day supply, there have been several suggestions for banning exports of diesel or fixing the price. When was the last time price fixing worked? Oh yeah, during the Nixon administration following the collapse of Bretton Woods… ha, ha, ha. I’m being unnecessarily sarcastic. Nixon and successive president Ford’s attempts to “Whip Inflation Now” included price fixing schemes. They didn’t work.
“Banning or limiting the export of refined products,” reads a joint report released by the American Petroleum Institute and the American Fuel and Petrochemical Manufacturers sent in October, “would likely decrease inventory levels, reduce domestic refining capacity, put upward pressure on consumer fuel prices and alienate U.S. allies during a time of war.”
Talking their book? Sure. That’s what they get paid to do. But what if they’re right? It’ll be interesting to see what a shortage of dirty fuel does. To me, this is the underbelly of the cultural change to a utopia of climate safe energy... we don’t really know how people are going to react when their houses are cold, food’s expensive and the lights flicker."
"Follow your own bliss."
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