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Hopes for Drought’s End Fade as California Rains Vanish

California will reach the halfway point in its rainy season this weekend. Hopes that the three-year drought will be washed away are probably already in the past. While December brought heavy rains that put the state on pace for a normal season, there hasn’t been much precipitation since then. Since Jan. 1, Sacramento and Fresno have received too little to measure. “We’ve had four weeks of a very minimal amount of rain in the northern part of the state, which is where our key reservoirs lie,” said Pete Fickenscher, senior hydrologist at the California Nevada River Forecast Center in Sacramento. Now the forecast calls for a high pressure ridge to form along the West Coast, bringing sun, mild temperatures and an extended dry spell. “They certainly have a dry forecast with that ridge,” said Brian Hurley, a meteorologist with the Weather Prediction Center in College Park, Maryland . “That […]

Posted On : Published By : Tom Whipple
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U.S. airlines anticipate massive fuel savings despite costly hedges

(Reuters) – U.S. airlines gave bullish guidance this week for their first-quarter results, buoyed largely by plummeting fuel prices. Four airlines said they will save hundreds of millions of dollars in fuel costs starting this year, with global oil prices down more than 57 percent since June. Fuel is the biggest variable cost for airlines, often representing a third or more of total operating expenses. Fourth-quarter results did not fully reflect the windfall, because many airlines failed to anticipate the steep oil price slide, and made fuel hedges months ago that ended up costing the carriers hundreds of millions of dollars. On Thursday, Alaska Airlines ( ALK.N ) projected a group low of $1.85 per gallon for the first quarter, down from $2.64 in the fourth quarter of 2014. United Airlines ( UAL.N ) said it will pay between $1.96 and $2.01 per gallon for the quarter, down from […]

Posted On : Published By : Tom Whipple
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U.S. jobless claims off seven-month high; oil layoffs watched

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits fell last week from a seven-month high, pointing to continued improvement in labor market conditions. Initial claims for state unemployment benefits slipped 10,000 to a seasonally adjusted 307,000 for the week ended Jan. 17, the Labor Department said on Thursday. That reversed the bulk of the prior week’s increase which had pushed claims to their highest level since early June, but fell short of economists expectations for a 300,000 reading. Economists had dismissed the prior week’s increase as "noise" given that claims data is difficult to adjust for seasonal variations around the holidays. Some, however, wondered if some of the elevation in claims reflected layoffs in the oil industry in the wake of plunging crude prices. "It is unclear at this point whether or not this move up in the trend reflects issues seasonally adjusting the […]

Posted On : Published By : Tom Whipple
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Gazprom committed to Ukraine

Russian gas company Gazprom chief Alexei Miller says Ukraine still in debt, but contractual obligations will be honored. (UPI Photo/Anatoli Zhdanov) MOSCOW, Jan. 22 (UPI) — Russian energy company Gazprom remains committed to its contractual obligations in Ukraine, company chairman Alexei Miller said. Most of the Russian natural gas bound for the European market runs through Soviet-era transit networks in Ukraine. Ongoing contractual rows between Kiev and Gazprom, and simmering conflict in eastern Ukraine, means that conventional route, as well as Ukrainian gas supplies, is at risk. The Russian company said it was operating under the terms of historic documents embraced by the pre-conflict government in Ukraine, which extends through 2019. A so-called winter package gives Ukraine a discount on gas prices, though that deal expires March 31. Miller said the company remained committed to gas supplies to Ukraine and gas transits to Europe. "Gazprom has cooperated and will […]

Posted On : Published By : Tom Whipple
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Ukraine Cedes Donetsk Airport to Rebels as Fighting Continues

MOSCOW — Ukrainian officials acknowledged on Thursday that they had relinquished to rebel forces control over the terminal of the airport in Donetsk, while artillery fire gutted a trolley bus in the embattled city, killing at least eight people, and evidence emerged of a growing Russian military role in the area. The airport, the scene of fierce battles in recent days, is nonfunctional, the terminal and runways having been destroyed months ago. Nonetheless, it has retained high symbolic value in the ongoing hostilities as the government’s last toehold in the city, the largest in the contested territory of southeastern Ukraine. At a news briefing in Kiev on Thursday, a Ukrainian military spokesman, Vladyslav Seleznyov, said that six soldiers had died in the fighting over the airport and 16 had been captured by forces of the self-declared Donetsk People’s Republic before a decision was made to withdraw from the ruined […]

Posted On : Published By : Tom Whipple
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A new theory of energy and the economy – Part 1 – Generating economic growth

How does the economy really work? In my view, there are many erroneous theories in published literature. I have been investigating this topic and have come to the conclusion that both energy and debt play an extremely important role in an economic system. Once energy supply and other aspects of the economy start hitting diminishing returns, there is a serious chance that a debt implosion will bring the whole system down. In this post, I will look at the first piece of this story, relating to how the economy is tied to energy, and how the leveraging impact of cheap energy creates economic growth. Trying to tackle this topic is a daunting task. The subject crosses many fields of study, including anthropology, ecology, systems analysis, economics, and physics of a thermodynamically open system. It also involves reaching limits in a finite world. Most researchers have tackled the subject without […]

Posted On : Published By : Tom Whipple
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Oil Fluctuates Ahead of ECB Meeting, Oil Data

LONDON—Oil prices fluctuated on Thursday with markets braced for the outcome of a crucial meeting by the European Central Bank and for data on U.S. crude inventories. The U.S. data could reinforce the perception that the global oil glut that has driven crude off a cliff since last summer will continue well into 2015. Brent, the global benchmark, is down close to 60% since June. On Thursday, Brent was up 0.7% to $49.40 a barrel in volatile trade on London’s ICE Futures exchange. On the New York Mercantile Exchange, light, sweet crude futures for delivery in March traded broadly flat at $47.80 a barrel. The ECB’s executive board is reported to have proposed buying roughly €50 billion ($58 billion) a month in bonds for at least a year, according to The Wall Street Journal. The final number will be decided when the full 25-member governing council meets later in […]

Posted On : Published By : Tom Whipple
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Oil Trades Below $48 as U.S. Crude Supplies Seen Higher

Oil traded below $50 a barrel in London for a third day as investors awaited a European Central Bank decision on starting a quantitative-easing program. Brent futures fell as much as 1.1 percent. The dollar approached an 11-year high against the euro, undermining the appeal of dollar-priced commodities for protecting against inflation, amid speculation the ECB will today introduce large-scale bond purchases. Oil also declined on estimates that U.S. crude inventories expanded for a second week. “The ECB will rule market sentiment today,” Olivier Jakob , managing director at consultants Petromatrix in Zug, Switzerland , said by e-mail. “Some QE is already priced in, hence directionally crude can go both ways” once the ECB’s intentions are clear, he said. Brent for March settlement was 10 cents lower at $48.93 a barrel on the London-based ICE Futures Europe exchange as of 9:45 a.m. London time, having earlier fallen as low […]

Posted On : Published By : Tom Whipple
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Natural-Gas Price Rebound on Cold Weather Forecasts, Profit-Taking

(Adds EIA survey forecasts and price table) Natural-gas futures bounced back from big losses as colder forecasts for the beginning of February and lower prices encouraged buyers on Wednesday. The front-month February contract settled up 14.3 cents, or 5.1%, at $2.974 a million British thermal units on the New York Mercantile Exchange. The gains broke a three-session losing streak that culminated with 9.5% losses on Tuesday alone, the biggest one-day losses by percentage since February 2014. While large, Wednesday’s gains were only the fourth-biggest in one day during the past month. The winter has been characterized by big swings in both directions as gas traders try to respond to shifting weather forecasts that impact demand. Half of U.S. homes use natural gas for heat, making winter cold typically the market’s biggest driver. Weather forecasts had flipped from colder than normal to warmer than normal over the weekend, leading to […]

Posted On : Published By : Tom Whipple
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Supply Minus Demand, Explained

I recently posted a graph on supply versus demand balances.  This has drawn significant interest, as it stands in stark contrast to the forecasts of all the agencies, OPEC, and the major forecasting firms. In this post, I will discuss the underpinnings. Demand World Oil Demand (All Petroleum Liquids) Source: Respective monthly reports of the agencies The major agencies, the US Energy Information Administration (EIA) and the European International Energy Agency (IEA), as well as OPEC, expect demand to increase moderately in 2015, up 1.0 to 1.6 mbpd (million barrels per day), with an average gain of  1.2 mbpd.  This represents a middling year, better than 2014, but certainly unexceptional in recent times.  Given that oil prices have fallen by more than half, the agencies must consider price elasticity of demand to be something close to zero.  According to these views, cheap oil does not make people buy more of it. This was […]

Posted On : Published By : Tom Whipple