Louisiana Voice

“I don’t know what the governor of Maryland is doing in South Korea. The governor of Maryland didn’t really understand. He didn’t really understand what was going on.”

–Donald Trump, in his April 21, 2020, criticism of Maryland Republican Gov. Larry Hogan’s acquisition of 500,000 coronavirus tests from South Korea after his telling the states that they essentially were on their own and to not rely on the federal government.

“I have a pretty good understanding of what’s going on and I appreciate the information that was provided by his team. The administration made it clear over and over again they want the states to take the lead.”

Republican Gov. Larry Hogan, responding to Trump’s defensive rant.

“The United States was once known for its can-do culture. We built the Panama Canal and we put a man on the moon. And now we can’t get a swab or a face mask or a gown and we have no real chain of command. And we have two Americas, a Republican one and a Democratic one, and they won’t collaborate. We are not leading in the pandemic response, we are trailing other countries by a long shot. This is a crippling blow to America’s prestige around the world.”

–Historian Douglas Brinkley of Rice University, on the nation’s inadequate response to the coronavirus pandemic, April 21, 2020.

All of which begs the obvious questions:

1. Is it humanly possible for Trump to not blame someone–anyone–else for his blunders (which would be comical were the consequences not so severe)?
2. Must everything be about Trump (as opposed say, to making at least a few things about cooperation, progress, and some faint signs of leadership?)
3. Is it remotely possible to have just a hint of consistency from this administration?

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“We have testing coming in two weeks that will blow the industry away.”

—Donald Trump, at Monday’s briefing on the coronavirus.

“If the testing does not get sorted out as soon as possible, it will be another nail in an almost closed coffin.”

—Comment of a Republican close to the White House in response to that assertion, adding that empty self-serving claims will not overcome the political challenge to Trump..

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Louisiana’s Revenue Estimating Conference was rendered obsolete and the state’s finances thrown into a tizzy yesterday when the price of oil plunged to a negative $37.63 per barrel from the (adjusted for inflation) high back in 2008 of $148.93, a swing of more than $186 per barrel. Stephen Winham, retired State Budget Director, explains what it all means in his analysis below:

By Stephen Winham

If I offered to sell you 5,000 gallons of high quality gasoline (no ethanol)  at 20  cents a gallon, but you had to take all of it today, would you take it?  Before you say yes, ask yourself, “Where would I put it?”

Oil is traded as a commodity on the open market.  Traders buy contracts to take oil at a price guaranteed for a specific period of time.  These are futures contracts and they expire on a date certain.  If an oil buyer or trader cannot sell the contracts to purchase by the deadline they have to take possession of all the oil for which they contracted.  Current contracts for May delivery expire today (April 21).

A contango exists when the contracted price of oil exceeds the spot (current) price.  This, of course, makes the contracts valuable only if the buyer thinks oil prices will rebound enough to justify taking it at the contract price – and, equally important, if they have someplace to store it.  Because there is too much oil on the market with no place to put it, we entered the uncharted territory of, not just low, but negative prices.

Oil for delivery in May was being traded at over $18 per barrel Friday (April 17) and at $15 per barrel Monday morning. These were extraordinarily low prices, but by the afternoon sellers had to pay buyers $37.63 to take their contracts for May delivery.  Again, these contracts expire today (April 21). Traders holding oil futures were paying buyers to take contracts off their hands at the risk having to take physical delivery of the oil, which most are incapable of doing.  The only way traders can store oil is to lease facilities which are already at a premium because most are full.  It is possible there will literally be no available commercial storage space by the end of this month.

Monday’s crash, while shocking,  was temporary and some say largely technical because trading on May contracts was relatively light.  Most trading yesterday was on  oil set for June delivery. However, the effects and implications of the oil glut are real and have serious implications for both the near and longer range future.

OPEC has already agreed to production cuts and Russia and Saudi Arabia have supposedly agreed to do so in May. The U. S. government plans to buy as much oil as possible for storage in our strategic reserves. These things  should help, but prices for June delivery will settle in the low $20/barrel range.  Some oil producers, already suffering, cannot survive, even in the short run, if they have to sell that low.

Although December 2020 futures contracts are currently trading in the low 30s, that’s pretty low and the rise in actual prices is currently unpredictable because we don’t know when, or how fast, the negative effects on consumption of the coronavirus will let up.  Consider that oil futures traded at over $65/barrel as recently as January and it is easy to see why futures at $30 are a bleak prospect for producers.

To the limited extent we need it, we are enjoying low pump prices.  Nobody knows how long they, or some oil producers, will last.

[AN ASIDE:  This crash we are talking about is in West Texas Intermediate crude, the U. S. benchmark.  Not all oil futures contracts are negative.  Brent Crude (the European benchmark) futures contracts, though also going down, traded at over $25/barrel Monday, but storage is less an issue with Brent because it is stored in oil tankers that can travel anywhere in the world.]

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“Whenever you start to think that the federal government under Donald Trump has hit a moral bottom, it finds a new way to shock and horrify.

Over the last few weeks, it has started to appear as though, in addition to abandoning the states to their own devices in a time of national emergency, the federal government has effectively erected a blockade — like that which the Union used to choke off the supply chains of the Confederacy during the Civil War — to prevent delivery of critical medical equipment to states desperately in need.”

—The New York Times Magazine, April 19, 2020,  on the problems experienced by states in trying to procure PPEs, frustrating—and unnecessary—roadblocks thrown up by the Trump administration which has threatened to seize shipments already paid for by states.

“Our supply-chain group has worked around the clock to secure gowns, gloves, face masks, goggles, face shields, and N95 respirators. These employees have adapted to a new normal, exploring every lead, no matter how unusual. Deals, some bizarre and convoluted, and many involving large sums of money, have dissolved at the last minute when we were outbid or out-muscled, sometimes by the federal government.”

—Excerpt from a letter published in the New England Journal of Medicine, April 18, 2020. [for those who don’t trust The NYT, the NEJM could hardly be considered fake news. And by the way, we thought price-gouging in times of emergency was illegal.]

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“We’ve gotta re-open and when we do, the coronavirus is going to spread faster…So, when we open up and we’re going to have to, and somebody’s got to make the call, we got to be smart about how we do it. When we end the shutdown, the virus is going to spread faster. That’s just a fact. And the American people understand that.”

—U.S. Sen. John Kennedy, on the need to end the shutdown in an effort to stem the spread of the coronavirus.

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