Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Economics Page 1 of 98

Manipulating Numbers Rather Than Logistics (Oil Version)

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On July 16, 2026

32 Comments

If you’ve been following oil prices since the Iran war started you’ve probably been surprised at how low prices have often been. I certainly was, at first.

The issue is fairly simple: most governments are worried about the price of oil, and not the supply of oil. So they’ve taken various measures to keep prices low. Some of those have been manipulative financial and some of them have been massive releases of oil from reserves.

IEA chief Fatih Birol told Bloomberg that a historic 400-million-barrel emergency release, equal to roughly 2.5 million barrels a day, helped push oil prices down by $20.

The price of oil, though, isn’t really the issue. One part of it is refinery capacity. A fair bit went off line in the Middle East, but ironically, even more in Russia. Why is Russia systematically destroying ever gas station in Ukraine? It’s retaliation for constant hits on Russian refineries.

Marathon Petroleum’s own management flagged on the Q1 earnings call that roughly 6 million barrels per day of global refining capacity is offline, about 6% of the world total. Ukraine’s drone campaign against Russian refineries is the largest single piece, but Middle Eastern facilities inside the Persian Gulf export corridor, and Chinese refiners voluntarily throttling to preserve inventory, add to the shortfall.

As a result Russia is no longer exporting diesel. And even though oil prices are low, gasoline prices are not as low as one would expect, because short refinery capacity means this:

Amusingly the Europeans and Americans have been encouraging Ukraine to hit refineries.

Now you may think “but America is an excess oil producer.”

Yeah, but it doesn’t matter. What matters is refineries and the type of crude oil involved. We aren’t just talking about gasoline, diesel, jet fuel and bunker fuel (ships), we’re talking about fertilizers, sulfuric acid (used for amazing amounts of processes) and so on. This cascades out into medicine (your aspirin for example), packaging, semiconductor production (hey, even higher prices) and whatnot.

But with rare exceptions (hello, China, again) most governments have not managed the actual supply situation.

In a rational economy prices and supply of crucial goods would be managed. For example farmers would get fertilizer and diesel at subsidized prices. Truckers shipping important goods would get subsidized diesel. Drug manufacturers would get guarnteed supplies (though not subsidized in most cases, they make tons of profits, just force them not raise prices.)

Rational governments would say “OK, what parts of the economy are actualy important (food, medicine, transport)?” and act to protect those parts of the economy, and would ration and subsidize those goods.

Instead our elites manipulate the price numbers and make the actual physical situation worse as they do so, by not allowing high prices to lower use and by not allocating key parts of the economy what they need at reasonable prices. Oh, and by releasing absurd amounts from the reserve to manipulate prices rather than using the reserve for actual necessities. They’re so used to an economy where just manipulating prices seems like all you need to do because there’s a global market with surplus. They don’t know how to handle an economy with actual, genuine shortages.

Anyway, as best I can tell if the Strait stays closed we are now weeks to about two months away from actual physical shortages in the first world. (They’ve already hit in the developing world.)

Then the fall harvest comes in and we get terrible numbers from that, and food prices surge.

This is the stupidest war of my entire lifetime and I’m old enough that this includes Vietnam, which was stupid beyond belief, but not one-tenth as moronic as the Iran war. A war of complete choice which the US has lost, won’t admit it has lost and is in danger of running the world into a decade long depression.

If it stops now or soon, it will suck, but we’ll get thru. But if Trump dismantles Iranian infrastructure like he’s threatened (by no means sure, this is Trump, but also not impossible, this is Trump) the Iranians have said they will respond by dismantling Gulf infrastructure: that means refineries that will take years and years to rebuild. Oil fields. Facilities producing helium. A decade of not enough fertilizer.

There is a real goddamn economy and if this happens, a lot of people will DIE due to famines and fuel shortages. Tens of millions. Maybe much more. You can’t just take 20 to 30% of the world’s supply of key resources offline and think “it’ll all be OK, the market will sort it out.”

I mean, the market will, sort of. But along the way will be a LOT of deaths and suffering

If the US had an even remotely operational governing system Trump would be impeached and removed in record time. He’s a fiasco, and he’s one itchy trigger finger away from being a catastrophe.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

Everyone Misses Second Largest Drive Of Core Inflation—Memory Chips

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On July 14, 2026

16 Comments

~by Sean Paul Kelley

Just about everyone has missed the second largest driver of core inflation (after petroleum) the Fed must reckon with. The insanely high prices and going higher of memory, you know, RAM, DRAM, SDRAM and the like. We’ll call it ‘chipflation.’

Chris Barber, CEO of a Baltimore based firm that helps small companies with IT says:

“RAM chips that sold for $100 six months ago are an “insane” $300 now, so customers may be better off just buying a new computer. “Parts themselves are just completely out of control,” Barber says. “This is the worst increase I’ve ever seen.”

That kind of price rise all but guarantees inflation, even using Fed based hedonics (don’t ask).

And Bloomberg says:

“Software and computer accessories, which usually trend cheaper as technology improves, were up a record 14.5% in May from a year earlier while the cost of electronic components for producers soared 27%. The memory squeeze will add 0.4 percentage point to headline inflation before it eases.”

I think Bloomberg understates how much pressure “chipflation” is going to increase Core PCE inflation.

Take Apple’s recent price hikes. They are 100% due to the increase in the price of memory.

Does the Fed really have a grip? Because “chipflation” will certainly increase in weight in meaesures like Core PCE inflation:

“Technology hardware (such as laptops, phones, and peripherals) historically acted as a deflationary force. Skyrocketing memory costs have reversed this trend. Analysts at Wolfe Research estimate that rising memory and storage costs alone can add noticeable basis points to Core PCE inflation.”

Why has “chipflation” flown so far under the radar at this point? One word: hedonics.

I’ll let Reuters explain: 

“Historically, hedonic models accounted for inflation by concluding that if a computer costs the same but processes data twice as fast, the consumer receives an implicit price decrease. Under chipflation, downstream hardware companies (like PC, smartphone, and appliance makers) are choosing to raise prices for devices that offer similar or identical capabilities to previous generations in order to protect margins. This severely slows down the historical trend of increasing “utility per dollar.”

And now this essential model to keepin inflation low is more and more useless. So, the Fed now has to deal with a private credit crisis—deflationary, an energy shock—inflationary and now this inflationary clusterfuck.

Talk about a trifecta!

Most US Jobs Won’t Support An American Lifestyle

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On July 6, 2026

30 Comments

Over at Interfluidity there’s a good post titled “Why Are Americans So Unhappy?”

Part of the answer boils down to this graph:

What this measures is what percentage of expenses of employees wages pay.

You’ll notice it keeps going down. It peaked near 100% around 1968 and has been trending down since. It’s now under 80%. Note the spike in 2020 when the government let lose the taps and actually helped people. I know a lot of people who, contra the “lockdowns sucks” remember 2020 as the only time they got to take a paid vacation. (And suicides in the under 18 group dropped massively, because school sucks.)

What makes up the rest of the money people use to support themselves? Well, for the better off its assets based wealth: dividends,  capital gains and all that good stuff. But for all intents and purposes if you aren’t in top 10% the amount of money you get from these sources is infintesimal. So, in fact, what actually makes it up is having two people working where one plus maybe a minor part time job would cover it.

The post is worth reading in total, but I want to point out something simple: this is deliberate. This is a result of policy. This is what American elites worked hard to create.

There are a lot of moving parts, but the most important for a long time was that the idea of NAIRU, that unemployment below a certain level was bad and caused inflation, so every time unemployment got low, the Federal reserve would crush the economy. (This is why good employment news would cause the market to go down, and bad employment news would cause it to rise all through the 80s to 2000s.)

Low unemployment is when employers are forced to raise wages, since there’s more jobs than applicants. It’s when labor has pricing power. So the Federal Reserve spent over 30 years (and still does occasionally) deliberately suppressing wages because they figured that wages were the most important form of inflation.

Or that’s what they said. There’s lots of sources of inflation, but somehow the Fed was never concerned with bubbles, never concerned with moral risk, never concerned with oligopolies and monopolies, never concerned with actually supply as opposed to demand. Nope, it was all those nasty workers who wanted raises.

Now a cynic, or perhaps a realist, might think “if there were a lot of ways to deal with inflation and the only one they did was crush wages” that perhaps inflation wasn’t at least 50% just an excuse to crush wages.

A realist might notice that everything else happening, like tax cuts on the rich, the end of Glass-Steagall, deregulation and much more all seemed to have as its effect making the already rich richer, and notice that wages are an expense to rich people, not their primary source of income, and that crushing wages thus also helped make the already wealth even richer.

Since many people pointed out, as early as the mid 80s, that the result of the policies being pursued would be rampant inequality, and indeed it was showing up in the stats as early as those 80s, one can safely assume that decision makers, whether at the Fed, Congress or anywhere else understood what the results would be.

But, after all, they are the important people. The good people. The job creators. The people who are worthy of having lots of money. Nurses, orderlies, janitors, clerical workers, garbage men:  pretty much everyone who has a job that actually does something the economy actually needs done and when it isn’t done people scream, they’re putzes and don’t deserve to have a good life. Just disposable trash.

At its heart it really is this simple. There were plenty of ways to deal with inflation, and many were suggested at the time. The most regressive path, one everyone knew would cause a lot of poverty and increase the wealth of a minority massively was chosen. It was chosen because it benefited the people in charge and their retainers, and those people didn’t and don’t care about anyone else.

Along the way the morons also managed to piss away America’s industrial and tech lead and lose America’s superpower status. But being fake rich (because it’s China that’s actually rich now, no matter how many billions of US dollars you have) and crushing their lessers was what was important to them.

And yeah, plenty of people, your kind and gentle host included, predicted this, well in advance. It was known. If you didn’t know, it was because you metaphorically had your fingers in your ears as you chanted “it doesn’t matter who makes things, or where. The market is global and fungible. It doesn’t matter who makes things, or where the market is….”

Anyway, it worked out for a few people. A few million. It’s a big club, as a comedian once noted, and you aren’t in it.

Your living standard was crushed, your wife was forced to work (not just permitted, but forced) and your children’s future was pissed down the drain deliberately, along with America’s place in the world, because it made a few million people rich, and a few thousand so rich Gilded Age barons would be jealous.

There was a class war.

The rich won.

You lost.

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

 

 

Management Theory (MBAs) Are Two Thirds About Non-Competition

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On July 1, 2026

19 Comments

There’s book from the 2000’s called “The Management Myth” by Stewart on my bookshelf. It didn’t sell all that well, but it’s an important book because it explains what management science is really about.

Stewart was a consultant, he reported from the belly of the beast.

Here’s the short of it: while Economics is crap, it is right about a few things, and one of those is that actual competitive markets have almost no profits.

A competitive market has:

  • low barriers to entry
  • many buyers and sellers
  • no one with pricing power,
  • and products are similar, meaning not identical but that competitors can quickly catch up with any advances.

If you’re a businessman, you don’t want to be in a market like this. You won’t make much money. Nor do you want to be in a regulated market where they attempt to make sure that anyone who has pricing power or another “moat” as they like to call it these days doesn’t make huge profits although more than in a competitive market. This is how the West was run between about 1933 to 1979. If your market was competitive, other than baseline rules, you were left alone. If it wasn’t, you were regulated. The most extreme case was usually utilities, which made x% (usually about five percent) profit a year. Not more. Not less.

Anyway, this sucks ass if you want to be as filthy rich as mud wrestlers are dirty.

So what Western businessmen (and a few women, but mostly men) did was take over government and dismantle all the rules and regulations intended to make sure that monopolies and oligopolies and so on didn’t form, and that if they did, they were regulated to protect consumers.

And now companies make MASSIVE profits. It’s sweet.

Except in China, where they mostly don’t. China’s notorious for having a low ROI.

That’s because China runs competitive markets or regulated markets, and very little in between. The CPC is on this like Nancy Pelosi trading inside information. They put CEOs in prison. They execute them. They regulate. You will compete, and if you disobey the law in a way that becomes big enough to notice, they will suggest you come in for a nice little chat.

There’s some talk that China’s low ROI is a “crisis”. And it could maybe bit a little higher. But only a little, to help avoid a deflationary depression trap (see “Great Depression.”)

But if China tackles this by allowing competitive markets to become un-competitive they’ll lose the juggernaut that is crushing industries in the rest of the world. People buy Chinese because it’s cheaper, and sometimes better. Product cycles are blazing fast, everyone’s cutting prices and improving models. This is why China has cars for under $20K—they aren’t able to charge oligopoly pricing. This is also why you can’t buy Chinese cars in America or much of Europe, because Western car makers would wind up like Carthage: burned to the ground, with the earth salted.

To simplify, but not to over-simplify, America and the West lost their lead because their businesses wanted to make lots and lots of money, so they destroyed competitive markets. This is also why you see this happening as the wave of MBAs and quants and other people who know nothing about product but have studies management science take over from the Engineers as CEOs.

Your economy can make lots of profits, or it can be competitive and thus keep prices low for consumers. It cannot do both. Pick one.

BYD also sells a LOT more cars, their revenue is only comparable with Tesla because Teslas cost MUCH more.

Anyway, if you want the details, read the book, though it’s somewhat out of date now, it gets the basics down better than any other one I’ve read. And since prices keep going up, and since this blog is free to read, perhaps consider subscribing or donating. I promise the money is only, occasionally, wasted on eating something nice and buying books. No I don’t have a book problem. Why are you looking at me like that?

How Many Poor People Could Elon’s Trillion Lift Out Of Poverty?

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On June 30, 2026

25 Comments

Every once in a while a complete tool graces the comments and inspires a post with their sheer stupidity.

A trillion dollars is a million million dollars. Elon is worth over a trillion dollars. Let us say that all of that minus 20 million was taken from him and it added up to on trillion. He should be fine on just 20 million. (I sure would be. Perhaps your need to snort cocaine off naked models is greater than mine. Hey, I’m not judging.)

Now let’s take that trillion dollars and give it to the homeless. Supposedly there’s about 750K, but we’ll give the next poorest 250K money too.

That’s a million each.

“But Ian”, you cavil, “they must be irresponsible people because only bad, stupid drug addled bad bad bad people wind up homeless. They can’t manage a million dollars and they’ll just spend it all on drugs in a few months and be homeless again!”

That’s not actually what the evidence shows. When you just give homeless people money, they mostly use it on smart stuff, but let’s pretend it is and admit that some of them, like some of us, don’t make the best decisions.

We’ll buy them annuities. Assuming age 40, that’s about $3,500 a month. Age 60, over $5,000 a month.

So, Elon has enough money to make every homeless person not homeless. And he’s only one billionaire+.

All total America’s billionaires hold about 8.5 trillion dollars. If we knock them all down to 20 million we could give at least 8 million of the poorest people in America annuities that pay about $3,500 a month. (One does feel for the cocaine dealers and models in this scenario, however. Oh, an the mega-yacht builders. No progress without someone suffering, I guess.)

Now do “use the money corporations spend on stock buybacks.” Left for the reader, but… there won’t be any poor people left in America.

The fact is that the really rich people are, well, so amazingly rich that it boggles comprehension. They don’t have a lot of money. They don’t have a LOT of money. They don’t have a LOT of money.

They have a LOT of money.

OK?

And yes, they do get a lot of it by making other people poor, they receive massive public subsidies, blah, blah, blah. I’ve written a bunch of those articles and if you’re making the argument that they did it all on their own Atlas Shrugged’esque, you an idiot. A very useful idiot for the people with so much money.

(This proposal is illustrative, not expected and yes, if taken seriously it would cause a lot of economic re-balancing and lots of people would whine it wasn’t fair. It’s illustrative. Illustrative. Repeat after Ian, “illustrative”. It’d still be a better way of using the money than the AI bubble though.)

America has poor people because the people with money and power want it that way. The details of how it is done are complicated, but it really is that simple.

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

Israel’s Support Is Eroding In the US

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On June 19, 2026

14 Comments

A friend pointed out to me that Israel’s support is eroding hard. The elite consensus is shifting. Point in case:

The hard core Zionists will keep opposing this deal, of course, but there are two groups that are shiftable. The first is the one that Tapper belongs to: he’s an authority follower. He’s been hardcore pro-Israel and loathes Muslims, but his first instinct is to follow the leader. Trump’s made a clear turn, and Jake is following.

The second group are those who need administrative favor. Their livelihood or plans depend on the levers the President controls favoring them. They were for Iraq, for Ukraine, etc… but they have no strong ideological commitment, only self-interest.

Trump made a mistake letting hard core Zionists roll up media and social media, but there’s still enough run by self-interested or follow the leader types that if Trump stays solid, the American elite zeitgeist will shift towards his stance. Israel is an ideological commitment, it’s not, for most elites and courtiers, all that involved with making lots of money or being part of the in-group. If the window shifts, they’ll shift with it.

At a fundamental level what happened is that America got itself involved in a war which it couldn’t just walk away from. Losing in Vietnam was embarrassing but really, who cares? Just walk away. Losing in Afghanistan, likewise.

But the Iranians have the West’s balls in a vise and the vise was slowly tightening. Key reserves were way down. Oil at Cushing OK is near historic lows. Distillates are getting scarce. Market manipulation of the price of oil was very successful, but actual physical shortages were on the way, starting in a month or so. (Ironically, price manipulation meant that oil reserves drew down faster than if actual price discovery had been allowed.)

There is a real world, and a real economy and Iran had control of it. The econo-morons talking about how the effect of this has been less than the oil shocks are right when looking at market numbers, but it wasn’t going to stay less and even Trump figured that out.

So the neocons and the hard Zionists will attack, but if Trump had the least concern for the actual economy, he had to make a choice.

Meanwhile Israel is still fighting in Lebanon and the first real battle of the Lebanese invasion is taking place.

Both Hezbollah and Israel are concerned there’ll be a new, actually real ceasefire and Israel is seeking to create facts on the ground. Ali Taher hill is an important strategic objective, giving whoever controls it sight lines for miles around. This is the first large engagement I’m aware of in this invasion where Hezbollah has chosen to stand and fight, instead hitting and fading. (That’s not a criticism. Guerilla warfare makes sense for them.)

And so far they’re doing well, because the Israeli ground forces are actually crap.

The Iranians have not gone to Geneva for the signing or negotiations. They are holding firm on Lebanon. And that means Trump can either rein in the Israelis or the vise starts tightening around America’s balls again.

America cannot win this war. It is impossible. Even using nukes probably wouldn’t work fast enough. That’s why they agreed to a deal that is very pro-Iranian.

That has not changed. They can rein in Israel or cut it loose now, or they can do it in two months when the US is in much more pain, or in 4 months when there are food riots.

There’s a real world. America lost a war that matters. There’s going to be a price for that. If America is smart and not completely controlled by Israel, they’ll pay that price now and if necessary cut Israel lose, because the price will go up every day if the MOU fails.

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

 

Closer to the End of Credit Cycle Phase Two

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On May 29, 2026

8 Comments

~by Sean Paul Kelley

For the first time in this Credit Cycle more money is leaving private credit than is going in.

In Q1 2026, $7 billion left non-publicly traded BDCs (business development companies, ie. private credit shops) while they only raised about $5 billion. Total redemption requests from investors to private credit shops topped $15 billion.

Okay class, a little math. If $7 billion was cashed out, only $5 billion was raised then $8 billion of redemption demands were denied investors. That means investors were denied 53% of their redemption requests. (One might call that a run on the bank.)

Systemic Deterioration

We’re talking about the entire private credit industry, here. Not just a bad loan or failing borrower. It’s becoming systemic.

“If there were no war,” as Herr Tarman at Deutschbank said, “in the Persian Gulf this would be dominating the news cycle.”

What makes this very, very bad is when more money leaves the private credit system, sales are forced.

These are not voluntary sales or trades. They are forced, essentially they are margin calls, except, as Bloomberg pointed out, some sales sell for .98¢ on the $1, others sell for .90¢, but one forced sale went real bad for the private credit firm. They got .65¢ on the $1.

That’s a 35% loss. I can recover from a 15% loss but losing 35%? Nope. That’s a busted investment I’m never getting my principal back on. This activity has a name, one rarely uttered on Wall Street, as it is the market equivalent of screaming, “Voldemort,” on the floor of the NYSE.

This is what we in the business call “Accelerating Downside Price Discovery.” (Honestly, last time this happened was in 2008 and I got giddy. I love seeing fools lose boatloads of money. The schadenfreude works like an aphrodisiac on me!)

Accelerating downside price discovery creates a vicious downward cycle in credit markets and later in equity markets. Assets devalue. Private credit shops announce bankruptcy. Lots of people lose jobs.

Then equities decline, soon the investment (Morgan Stanley and Goldman Sachs) and commercial (JPM Morgan Chase, BoA and Wells Fargo) banks crater. In February 2009 I bought an enormous amount of Bank of America at $6 a share. A month later it was trading at $3.50-ish. I was biting my fingernails for sure. But, ten years later I sold it for almost $30 a share. But for ten years the stock traded sideways. So did the equity markets. The Fed’s QE–quantitative easing–made money virtually free and no one paid a price for the sub-prime fiasco.

This time will be different. No one understands what private credit does, except buy up empty houses and make the housing crisis worse.

Petroleum And Economywide Demand Destruction

Another consequence: This credit cycle is ending and oil futures are flashing a clear deflationary spiral. This is why I keep pointing out the long end of the WTI Oil futures price contracts going out a year. Here is why oil matters:

In Mid-August US petroleum reserves (non SPR) will fall to 390 million barrels. Today that number is 440mln barrels.

For refineries, pipelines, storage tanks, and terminals to function the system needs a minimum of 380mln barrels in reserve. If reserves fall below that level getting petrol from point A to B is like pushing a string, instead of pumping a viscous liquid.

Let’s do some simple math. We export 5mln barrels a week, plus or minus a million. The US uses 120million barrels a week. Subtract our exports over the next ten weeks. That’s 5×10=50 mln barrels pulled out of the reserve. Subtract 50 mln barrels from present reservers (non SPR) gets us within the margin of error at 390mln barrels. At this rate US petroleum and gasoline reserves will be at crisis levels in mid-August. 

And herein lies the big rub, the dilemma of dilemmas, caught between Scylla and Charybdis: how can the Fed backstop a credit crisis with easy credit (because only easy credit solves a credit crisis) when its fighting phantom inflation with high rates, ie. tight credit? It cannot do both. Picture clearing up now?

I’ve been explaining the imminent unraveling of this credit crisis here at Ian’s for at least two months now. Today we’re closer to the end of Phase Two of the Credit Cycle now than we are to its start. When Phase Two unravels fully, that’s when the AI bubble goes pop.

When will that be?

Sooner than we want, but not as quickly as we fear.

“Cowboy up,” folks, as we say down here in Texas, “you’re going to need a raincoat.”

America Exports Record 6.4 Million Barrels of Crude

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On May 5, 2026

8 Comments

Today’s headline news chronicles our triumphant, record-breaking petroleum exports: 6.4 million barrels a day. The highest weekly figure ever recorded. On the surface, it appears America may just make up in exports what the closure of the Straits of Hormuz prevents.

On the surface.

The reality of our domestic petroleum situation is more dire. The same week America exported record amounts of crude it quietly drew down its strategic reserve to the tune of 7.1 million barrels a day same week ending April 24. This represents the largest drawdown since 2022.

Let’s do some simmple arithmetic: drawdown strategic reserves by 7.1 mln and export 6.4 mln. Subtract and you get a net loss of 700,000 barrels a week. That’s the burn rate of crude oil. Not slack. Vanishing.

Adding insult to injury, Morgan Stanley reports that gasoline inventories are at their lowest level since well, ever. Yes, ever. By August gasoline reserves will freefall to 198 million barrels. 

In reality, America is facing an unsustainable crude oil burn rate coupled with a completely unsustainable draw down in gasoline reserves. These drawdowns are occurring in the face of perilously high petroleum prices, including gasoline.

But domestic petroleum production, and refining capacity will make up the difference!

What part of unsustainable did you not understand?

For example, the oil refinery on Corpus Christi Bay here in South Texas is effectively off-line because it has no water source. Lake Corpus Christi is dry. No water, no refinery, no gasoline.

To make matters worse, domestic crude production is trending flat to down, even as WTI spot prices are in the $102 range.

Permian Basin rig counts, a leading indicator of what future crude production will look like, are down 15.33% YoY. Oklahoma rig counts are down from 55 last April to 43 today. That’s a -21% decline YoY. New Mexico dropped 3 rigs and Wyoming dumped 1. What about Eagle Ford shale oil you ask? At $102 a barrel shale has to be profitable. True, but there hasn’t been a drilling permit issued in the Eagle Ford basin in three years. None have been filed with the state since the crisis with Iran began. There’s a reason for this. WTI spot prices are $102 a barrel, as I previously noted. Those are spot prices for oil deliverable right this minute. If you go 12 months out on the contract curve to May 2027, the price of WTI Falls to $73 a barrel. At that price shale oil isn’t in the sweet spot. 

Moreover, what the prices in May 2027 are telling policy makers, factory owners, grocery store managers, freight shippers and the like in bright red flashing lights are that a deflationary spiral is a very real possibility.

Here’s where the rubber hits the road: the petroleum and gasoline burn rate will force the Fed’s hand and compel a rate increase to prevent a massive inflationary spike.

But what is the Fed to do six months to a year from now when the looming credit crisis, and housing collapse reach critical mass and unravel, popping the AI bubble the blowoff?

We’re literally exporting our seed corn.

You can’t reap what you don’t sow.

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