Business owners should seriously consider making key decisions well before the November elections because the economic flood waters will rise significantly after that regardless of the result. If the party in power wins by retaining it's slim majority it will no longer need feel the need to "paint the tape" and present a false and misleading economic outlook. If they lose, we will likely experience two years of gridlock politics. Either way, I believe we will see higher interest rates, higher fuel costs, supply disruption for basic materials and diminished consumer demand.
It's good we got a relaxing July 4th weekend with plenty of sports distractions to prepare!
I don't mean to be overly dramatic or negative in my outlook but I want to simply point out the very real risks most business owners are facing right now. This isn't really news to most of you who are working in the marketplace daily, right? I speak with business owners every single working day of the week and what I'm hearing are facts on the ground based on actual experiences. Lenders are tightening credit parameters for sure, I see that every day. Demand is reduced in most industries and anywhere demand is high, production is restrained by either higher costs or restricted supplies. One of my regular clients ships furniture from China and other countries to the middle east. His costs for container shipping have exploded higher even though his demand increased. This and may other examples are part of the lived experience of many, many business owners who cannot afford to make plans based on faulty or manipulated financial numbers. Does anyone really believe the inflation rate is only 3.7%, I mean, really??
According to many energy analysts who's job it is to accurately estimate fuel supplies in the US we are anywhere from 8 days to a few weeks away from a massive supply disruption in Diesel and Jet fuel. It's not only the supply of Oil but rather which TYPE of Oil we use. The Oil needed for Diesel and Jet fuel comes almost exclusively from the Persian Gulf which has been closed now for four months. Some Oil is now getting through however none of it is coming to the US, it's all going to Japan, China and India. Iran is pissed at the US for killing it's top leaders and even though Oil tankers are getting permission from them to transit the Straight of Hormuz, they only allow ships heading towards Asia and countries not alligned with America. That is to say, the reports of more oil leaving the gulf are true just none of the Oil leaving is coming to us here in the US. The "Sour Crude" from the gulf is critical for the refining of Diesel which is what all of our trucks, tractors and locomotives run on. The facade of economic prosperity is wearing very thin.
"The grade the refineries in the Gulf (of Mexico this time) need is the sour one. It might sound like the worse oil, but medium sour is what they require to cook into diesel and jet. Which supports every truck and train and ship and plane in the country.
The current reserve clocks in at around 326 million barrels. The Pentagon has a strict floor of 243 after which the country can’t fight a war any more. So the Pentagon has a 243 limit. Tanks and planes and ships run on sour because they need diesel. So the real floor is however much sour is left."
"The whole release’s job was to replace the medium sour that stopped coming out of the Gulf (of Persia).
I’ve read estimates between “end of June” and “somewhere in November”. And yes, I realise we’re past the former point already. I guess the release of the tankers during the MoU steered ceasefire bought a bit of time. I read about 20 days.
We can argue all we want about when they’ll run out, but the direction is pretty clear. A straightforward calculation to deplete the leftover 326 to 0 would take about 74 days at maximum drawdown capability (4.4/day). However, this is not realistic because those caverns have an operational floor of about 100-140 million barrels. Go below that and the caverns collapse and pumps lose efficiency.
The screens keep flashing mainly 2 types of oil: WTI & Brent. Like it’s one big total… Like it’s all the same.
It isn’t.
As far as I know Iran still decides which ships pass and which don’t. And the stuff that everyone needs – the sour one, is the one that Iran has the most of. And that is heading to China, NOT the west."
Why am I talking about Oil, Diesel and Jet Fuel? I don't know, it occurs to me that everything else sort of depends on what happens to the price of energy. Just saying.
To my dear readers and business clients I see issues that aren't even being reported much less dealt with. As a business owner myself it's all I can do to keep up with the important changes that affect my own model and stay relevant and competitive. The same is true for all business owners right now. Interest rates aren't likely to come down this year and, until all the hidden factors pending with the energy situation play out in full, I expect surprises and dislocation. Anyone waiting for things to improve by September could be right but there's way to much in the of unresolved issues for me to be down with that outlook right now. Based on the statements by JD Vance recently and the general operational confusion surrounding the disastrous results of the extremely misguided adventure in the Persian Gulf I would expect another round of war headlines after the elections are over.
“So, I think what the president has told us to do is use this MOU to sort of refill the world’s oil economy. To refill some stocks, and then to see where the hand is.”
I suggest taking whatever measures your business needs such as borrowing, spending or hiring before November.
