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~ USA Headed for a 5th Revolution! Why?

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Monthly Archives: April 2022

#445 Why Let Oil Traders Control US Gas-Pump Prices? (con’t)

14 Thursday Apr 2022

Posted by Jordan Abel in Uncategorized

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Welcome to a discussion about the upcoming 5th Revolution in the US, which I’ve titled the “Revenge Revolution.” For more about the Revenge Revolution and the author, Entry #1.  Periodically I write a “sense check” to assess whether a revolution in the US is possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US. Entry #430 was the most recent “sense check.”

Entry #443 raised the question whether the US should link gas-pump prices to spot oil prices. This entry offers some additional information.

First, let me clarify that the presumed link between spot oil prices and pump prices was assumed to be at the macro level, i.e., average national price, and not intended to predict prices at an individual gas station. Obviously, there are numerous factors affecting prices at any individual gas station – rent, competition, geographic location, transportation cost, state taxes, and so forth.

The variables affecting pump prices at a specific station probably account for no more than 20% of the pump price, and likely far less.  If one had data over time of pump prices at a specific station, the correlation to spot prices might parallel the correlation for national prices.

In determining whether national gas-pump prices track spot-oil prices, I was reminded of some guidance conveyed while a graduate student at MIT. One of the professors at the Sloan School was fond of saying, “when in doubt, run a regression.”  The advice has proved valuable over the years, at least to get a handle on possible causes.

Obviously, correlation does not equal causation. At the same time, when the variables appear inextricably linked, a high correlation increases the likelihood of causation.

For the spot-price/pump-price correlation I used two data bases from the Energy Information Administration: (i) spot oil prices for WTI (West Texas Intermediate); (ii) average US gas prices. The data gathered by EIA are reported by week.  Spot oil price was the independent variable. 

To get some idea of the correlation, five (5) different periods were selected, ranging from three (3) months to 15+ months, including prices published during the week of 04/11/2022.  The periods were selected somewhat randomly and might not be the most representative.   Nonetheless, the five periods included different levels of stability and a range of prices. The widest variation in prices occurred during CY2008, when maximum oil price was $142.52, 4.32x higher than the minimum price of $32.98.  The least variation during 1994, when maximum oil prices only varied $3.30/bbl.

Note: The degree of correlation is noted in the column titled “R2“. The higher the number, the higher the correlation. An R2 of 1.0 would indicate that gas-pump prices change at exactly the same rate as spot oil prices. Any R2 above 0.8 indicates a indicates a very strong relationship.

The pattern of the correlation was remarkably consistent. The higher the spot price and the greater the volatility in spot prices, the higher the correlation. Only in 1994 when spot prices stayed in a narrow band, and gas prices changed even less, did the correlation drop significantly. Since pump prices remained so stable in 1994, even a small movement in spot prices would reduce the R2. 

The correlation did include a two-period lag between spot prices and pump prices as published by EIA.  The data were lagged to allow for some delay gathering and reporting pump prices and for some delay between changes in spot price and changes at the gas pump. The lagging increased R2 a few points compared to using EIA data published during the same calendar week.

No adjustment was made to gas prices for changes in state taxes or changes in refining mix. For example, in the upper Midwest, the gasoline “blend” changes in the summer. For many years, and it still might be the case, the capacity to refine that summer blend was limited, so sharp jumps in pump prices were common, even if spot oil prices remained stable or declined slightly. I recall one business trip to northern Indiana in early summer when the pump prices at the same station increased nearly $0.40/gallon between morning and evening.

The correlation, in my view, reinforces the need to address the question, “If the US is so concerned about how fuel-pump prices affect CPI and other costs, then why does the US allow pump prices to be linked to spot-oil prices?” The link seems especially unnecessary since the US has reduced imports and in CY2021 became a net exporter of fossil-fuel products. 

The cost of domestically produced oil does not change whether the spot price for WTI is $100/bbl, $10/bbl or $1/bbl. The cost to refine the oil (WTI) does not change because refining is a processing cost, not a raw material cost.

As noted in the first memo, if the US wants to begin to make fuel prices more predictable for consumers and businesses, a good first step would be for the Biden administration to complete a comprehensive analysis of anticipated crude-oil supply based on different fixed prices.  And, yes, the analysis should review why such efforts have either failed or succeeded in other countries.

With such a large domestic supply and production base, such a study would help bring to light the enormous impact of spot prices on pump prices and how influential a few oil traders are in affecting the disposable incomes of many US citizens.  The decision might be to continue the current approach.  However, having a meaningful debate whether to implement a fixed national price or a hybrid version, having less volatile price for gasoline and diesel (before tax) would help manage inflation, would help sustain economic growth and might help focus members of Congress on attempting to address and solve real problems.

Note: The NY State Attorney General apparently believes the oil companies might be price gouging.  The AG opened an investigation.  A number of media reports 04/14/2022. END ENTRY #445

Other Topics. Interested in more info about climate change, what’s required to electrify a fleet of cars/trucks, what it was like to work day-to-day with Lee Iacocca and an array of other topics? Visit another page of this website, https://usrevolution5.com/jrd-thought-comments/  

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#444. Trump Trifecta — Dumb, Dumber, Dumbest

01 Friday Apr 2022

Posted by Jordan Abel in Causes of the Revolution, Uncategorized

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Welcome to a discussion about the upcoming 5th Revolution in the US, which I’ve titled the “Revenge Revolution.” For more about the Revenge Revolution and the author, Entry #1.  Periodically I write a “sense check” to assess whether a revolution in the US is possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US. Entry #430 was the most recent “sense check.”

BEGIN ENTRY #444: Over the 8+ years writing this blog, I tried to focus political comments on behavior rather than focusing on a particular political party.  During the Trump administration it was very difficult to maintain balance, given the number of stunning acts by Trump and staff.

Since President Biden took office, the number of crazy acts by Trump and allies has slowed but the intensity of each act has increased. The past few weeks the behaviors of Trump et al have set a new standard. The individuals involved could be categorized as dumb, dumber and dumbest.  Welcome to the Trump trifecta.

Most of the bizarre comments by Trump-touting Republicans have centered on three events:

  1. Senate Judiciary Committee’s hearing regarding nomination of Judge Ketanji Brown Jackson to SCOTUS
  2. Discussions about Russian invasion of Ukraine
  3. Texts by the wife of Supreme Court Justice Clarence Thomas encouraging White House staff et al to overturn the election

During the Judicial Committee hearings four Republicans demonstrated why the approval rating of Congress rivals the approval rating of a used-car salesman, with the rating for Congress possibly lower.

Judge Jackson who currently sits on the DC Circuit, was berated by Senators Ted Cruz, Lindsey Graham, Josh Hawley and Marsha Blackburn – an appropriate name for insulting Judge Jackson.

As is wont for Republicans of late, claims were made based on statements taken out of context and/or data that was distorted or cherrypicked from a more comprehensive data set, all in an effort to discredit Judge Jackson. The distortions were intended to “prove” Judge Jackson was soft on pedophiles, supported the theory that babies are born racist and a host of other spurious claims.

Virtually every question related to decisions prior to Judge Jackson’s arrival on the DC circuit. In previous hearings before this same committee regarding her nomination to a higher court, none of the same, or even similar questions were asked.

The Republican protagonists, all of whom likely want to run for president, apparently felt compelled to throw red meat to the hard right Republican primary voters.  While the questions were insulting and frustrating, more disturbing was the lack of any effort by the other members of Congress to distance themselves from the foolish foursome of Senators.

In addition, it seems the cat got the tongue of all Republican senators with respect to comments by Trump and the Fox talking head Tucker Carlson.  Both Trump and Carlson have continued to support the Russian invasion of Ukraine. At a recent political rally in Atlanta, Trump again repeated the assertion that Putin was a genius.

Given the sorry state of the Russian economy and how poorly Russian troops have performed in Ukraine, why would anyone call Putin a genius?  Unless, of course, Putin had Trump by the short hairs over some financial transaction or illicit activity.

There seems to be more than ample evidence much of the money Trump used to expand the business, including buying golf courses, was provided by Russian sources. When Trump purchased a private Country Club on the north side of Charlotte, NC, Donald Trump, Junior proudly stated that Russian money was the source of funding.

As far as the behavior of Tucker Carlson, I’m sure Republicans would remain silent if a nightly commentator on MSNBC or CNN made similar comments during the broadcast.  Tucker Carlson seems more like a modern day Tokyo Rose.

Completing the trifecta for Republican dumbness was the publication of information about texts by Ginni Thomas, wife of Supreme Court Justice Clarence Thomas. Mrs. Thomas’ texts encouraged Mark Meadows, then White House chief of staff, and others to help overturn the 2020 election. Thomas continued those texts until the January 6th insurrection and even participated in some events prior to the storming of the Capitol.

Clarence Thomas, who so far has refused to recuse himself from any cases before SCOTUS involving Trump, apparently has no intention of doing so in the future. And where have Republicans been during these revelations? Apparently, the cat still has their tongue because no comments at all.

You’d think the pillars of integrity of the Republicans, you know like Representative Jim Jordan (OH), would take a stand in favor of integrity.  On a more realistic note, where are Mitt Romney, Susan Collins, Lisa Murkowsky and even Richard Burr?  You’d think Burr might speak up since he’s not running for reelection.  What does he have to lose by taking a stand?  (On a side note, at least Senator Collins agreed to support the nomination of Judge Jackson.  So far the only Republican. Senators Murkowsky and Romney later joined Senator Collins in voting for Judge Jackson.)

What does the behavior Republicans have exhibited the past few weeks and especially the past five years have to do with the likelihood of a 5th US Revolution?  For certain the behavior of Republicans has increased the odds of a revolution beyond 50:50.  In fact, with each passing week part of the US population seems to be speeding toward instigating a revolution rather than working on solving the problems we face. END OF ENTRY #444

Other Topics. Interested in more info about climate change, what’s required to electrify a fleet of cars/trucks, what it was like to work day-to-day with Lee Iacocca and an array of other topics? Visit another page of this website, https://usrevolution5.com/jrd-thought-comments/  

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