Thursday, May 22, 2008
DC area "slugging" could be disrupted by fewer commuters driving; oil prices are really spiking now; IEA to report markets tapping out
I can recall when I was working in information technology in Arlington fifteen years ago hearing other teammates talking about depending on slug lines. In information technology, I wondered if that was kosher, because people had to work overtime a lot (unpaid); there were deadlines, big system tests, and abends at night. In fact, carpooling could be a problem, because in IT, I thought, you couldn’t count on going home at a specific time. Oh, the day care pickups, and everything else, all of that was alien to me. I had an apartment four miles away, and could come and go anytime. Sometimes other workers took advantage of my convenience, and sometimes I resented it.
So, today, goes the discussion of slug lines. “Slugging” doesn’t refer to the baseball statistic that measures extra base hits and homers. It specifically refers to the practice of solo drivers picking up riders so they can use the HOV lanes during DC rush hours, on I-95 and on I-66. In fact, a portion of I-66, from Falls Church all the way to the terminus in the District after the Roosevelt Bridge (through Arlington) is available only to HOV vehicles during rush hour, since it is only two lanes each way. Drivers need riders, so they aren’t supposed to charge.
The latest news is that there are fewer drivers (with the surging oil and gasoline prices) so riders may have to wait longer or might not find rides at all.
Many other cities have HOV lanes (I once got directed onto one while alone in Pittsburgh by a police officer as I tried to get out of a crowd near Pirates stadium; I didn't get fined). I would think the practice of slugging would go on in most metro areas.
Where is this headed? Wednesday May 21, the crude short term price jumped to over $135 (by over $4 in one day, I believe). This runaway, Weimar run-up in oil prices is threatening the business models of many companies. Now American Airlines will charge a $15 fee even for the first checked bag.
An article by Alexander Kwiatkowski on Bloomberg explains some of the speculative ride, with explanation of the term “falling open interest” and the need for speculators to exit “selling short” positions on futures as suddenly the US shows a dip in inventories (in May, when it is usually growing), and as China is likely to cause a spike in demand (especially for diesel) because of the earthquake (which doesn’t really seem to have damaged China’s own production, however). The link is here.
Bloomberg has a chart on Department of Energy Crude Oil inventory, here I found a tabular version of this information on the DOE’s own site here. Look at the third row to compare to Bloomberg. (There are many other related charts on DOE, some of them in separate PDF’s only; The Department of Energy’s own chart on the Strategic Petroleum Reserve is here (This is a "just in case" inventory available if there is a major oil supply disruption.)) Christian Smollinger explains this chart and related information (the sudden dip is alarming) in this article (slightly older, from yesterday) on Bloomberg.
Yesterday, as other media outlets reported, Congress grilled oil company executives about the runaway price increases. ExxonMobil’s official explanation ("Factors in Fuel Pricing") is here.
Even Regis and Kelly talked about this problem today (May 22). The oil companies say they make 4% of what we pay for gasoline.
Is this parabolic price rise simply an adjustment to short-selling? In that case it could be a commodity "bubble" (like a stock market (dot-com) or real estate or even Magnolia Pictures "Bubble") that could be modeled in calculus with curve fitting. Or is it because world oil production really is getting tapped out, and we are now ready for our "Crude Awakening" as in the Netflix film.
There is a story on the front page of the Wall Street Journal this morning by Neil King, Jr. and Peter Fritsch that makes the alarming "tapped out" argument, "
Energy Watchdog Warns Of Oil-Production Crunch; IEA Official Says Supplies May Plateau Below Expected Demand," link here. The International Energy Agency offers an Oil Market Report, but much of the detailed content requires paid subscription.
This week, CNN has been running an updated version of its one hour film “We Were Warned” that suggests that during a price spike (particularly after a natural catastrophe somewhere in the world – it doesn’t have to be a hurricane in the Gulf), oil production facilities overseas, particularly in Saudi Arabia, could become tempting targets for Al Qaeda. Then what happens?