Posted by: Rob | March 11, 2009

Spin vs. Responsibility

I don’t know why I’m still listening to CNBC on XM. Especially after Jon Stewart eviscerated CNBC and Rick Santelli on last Wednesday’s (March 4, 2009) The Daily Show. But I am still listening periodically, despite the disgust I mostly feel at what I’m hearing.

Case in point. Today, as I was driving back to work after lunch, I heard one of the talking heads talking about the drawdown in gasoline stocks over the previous week. She also mentioned that there has been a reduction in refinery utilization.

She immediately jumped to the conclusion that these data are indicative of a coming shortage. And with shortage comes…….? Yeah. A spike in prices. The implication here, at least to me, is that gasoline demand must be on the rise. Right?

Maybe not. This is where I get really tired of the spin these “analysts” put on the data that they are reporting. This particular reporter obviously knows nothing about the fuels refining industry. Absolutely nothing.

If she did know anything about fuels, and how they’re made, she would have learned that there are seasonal variations in pools because of specifications.

What are pools you ask?

Crude oil (and, to a lesser extent, condensate or natural gas liquids) is the basis for motor fuels. Crude oil fractions can and do undergo extensive processing in order to become the usable fuels of today but, for the most part, the majority of the crude oil ends up in one of two different pools: gasolines and distillates.

There are seasonal variations in specifications because ambient conditions affect the behaviour of fuels. For example, in cold winter climates (really cold ones, like in Canada) gasoline may not vaporize sufficiently to start a gasoline engine (what one gets in this instance is a “flooded” engine and this more of a big deal in the days of carburetted engines). Normal butane is added to winter gasoline to help its vaporization capability and enable cold starting. Similarly, a diesel fuel blend that has no issues in the summer will, in fact, turn into jelly when subjected to cold temperatures. As you might imagine, jelly has very poor flow characteristics. In fact, the diesel engine may exhibit “empty fuel tank” symptoms.

Refiners address these issues by changing the fuel specifications month by month through the seasons. This results in changes in the size of the relative pools of each fuel from summer to winter. In the winter, more of the crude goes into the gasoline pool as the diesel blends are lightened and the heavier components are further cracked becoming, in part, a part of the gasoline pool. Put simply, in the winter the gasoline pool is large and the diesel pool is small. In the summer, the gasoline pool shrinks and the diesel pool grows, reversing the ratio.

So, coming back to my original disgust with the CNBC reporter, who seems to be attempting to extend that getting “something for nothing” paradigm, the fact that gasoline stocks declined week over week in the last week may have more to do with the seasonal swing in fuel pools and less to do with any uptick in demand.

As for refinery utilization declines, well, I would expect that said reporter knows nothing about how refineries are operated and the periodic need to shut the refinery down for maintenance. You see, equipment needs inspection, equipment needs repair, it wears out, it gets plugged up. This is addressed by shutting the refinery down – during overall low demand seasons (when it’s not winter) – emptying the equipment, opening it, cleaning it and doing repairs and, perhaps even new equipment additions over at 30 to 45 day period.

I haven’t checked any industry stats, but I would be inclined to believe that one or more of the US oil refineries have been temporarily shut down for their regularly scheduled maintenance turnaround.

Hmm. No big conspiracy there, either.

To the unnamed, unknown CNBC reporter: Learn something about what you’re reporting on or just shut the fuck up. Quit already with the spin and be more responsible!

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Responses

  1. Oh, but that’s no fun! We need to get the people all excited about higher fuel prices. Although I believe we are still in declining fuel usage and increasing transit usage after the high prices last summer.

    • Be nice if there truly was a “paradigm shift” amongst the masses.

  2. Thanks for the schooling! That was pretty interesting.

    The day after the Santelli rant, Stewart ripped Jim Cramer a new a-hole. Did you hear it? It’s worth the look.

    • I just watched the whole week’s worth of Jon Stewart’s side of “The War of Words”. Jon Stewart is a remarkably perceptive and intelligent man. It’s too bad the moniker he’s dubbed with – “comedian” – means he’s taken less seriously.

  3. B-b-but facts are so boring! You can’t get good ratings without the three Cs: Crisis, Chaos and Calamity.

    • …and in the words of the late former US President Ronald Reagan, “Facts are stupid things.”

  4. Rob, far be it from me to defend CNBC, but it is usually on in the background 10 hours a day in my office.

    Overall, I find the quality the guests, comment, debate analysis is very good, though I usually clock off after US Opening Bell – US Squawk is very good and I find European Squawk and Global Exchange pretty good.

    Most importantly, I learn loads!

    Anyway, given the volume of analysts on the show I take your point. Often, analysts have little to offer that is of value, some try to talk up positions, or can be downright erroneous. Nothing has changed on this front in a millennia – pundits trading in markets. Most believe they are doing their jobs, you can take their advice or leave it, there is no social obligation attached.

    One must sort the wheat out from the chaff. For every quality piece of analysis, someone will rebut with a sometimes spurious one! Analysts must stand by their opinions and data, and the ‘spin’ often, they are not going to be around for long, especially on tv.

    Unfortunately Joe Public has little chance, the odds are simply against him. As you well know, the odds are against professional asset managers and traders, it is just that they have better discipline.

    In June 08, I had a highly reputable Norwegian oil analyst from a Big Bank tell me oil was going to 200, despite my interrogation on economic fundamentals. I felt compelled to short it on his dubious account the price movement!

    P.S. Santelli is a hero of mine!

    P.S.S. Check your data. My understanding is that producers have been trying to get a better balance between supply and demand, lowering refinery production. Low prices may be driving demand, it has increased by ~2% in the past month and this is part of the reason the crude price is being driven up.

    BB

    • Hey beaverboosh and welcome (I think I didn’t extend a welcome after your last comment),

      Thanks for the perspective. I do tend to generalize at times and when I get to ranting it’s because a single thing has finally let the dam burst. One person/event winds up receiving quite a bit of stored up venom. There may very well be some nuggets of wisdom buried in the hours of broadcast from CNBC, but I don’t think I’ll ever find them. I don’t watch TV, really, and I only get CNBC on XM radio driving to and from work, mostly.

      I think, for the most part, that the whole “news as entertainment” idea that broadcast news programs have embraced has spelled the end of the integrity of the information presented by “journalists”. Apparently, it’s a race to the lowest common denominator in order to achieve ratings which, of course, translates to ad revenues.

      Personally, I just get weary of the hype that I’m subjected to. From where I sit, these people are mostly trying to drive people to make decisions based on emotion instead of rational thought. I don’t buy it. And I don’t like that it seems to be somewhat successful with the populace.

      Mind you, I’ve evolved into someone who has a bit of a problem with where the “idea of how we live our lives” has gone in western society. Thoughtless greed and avarice are not, in my opinion, tenets by which one would live a good life. If you’ve spent your entire life in pursuit of money, then what do you have when you die? Money? Well, I’d rather be on my deathbed knowing that I have lived my life spending time with the people I love, enjoying the world we inhabit and maybe, just maybe, making a difference.

      As far as checking my figures goes, I did not research any figures. Any of the “real” data is not available to me anyway. My statements are largely based on knowledge and experience gained through the years I worked in the petroleum refining industry.

      What I have heard of late is the the crude oil storage facility at Cushing, Oklahoma is awash in oil right now. The Oklahoma oilmen are getting annoyed and have made statements that “cheap Canadian crude” is driving down the price they’re able to get for their local crude. That’s so nonsensical an idea, it’s not even worth commenting upon.

      I’ve only heard Santelli a few times, usually a quick sound bite, and he sounded like an okay reporter. But after his “impromptu” rant about “loser” mortgage holders I now think he’s not much more than a loud mouthed schmuck.

  5. A really good take-down of CNBC occurred last week on The Daily Show with Jon Stewart. It kind of went on all week. You can view on the web at http://thedailyshow.com It’s worth watching.

    • As an existing fan of Jon Stewart, I found this past week’s episodes (thankfully available streaming from the web) very entertaining. It’s been my contention for a while now that CNBC exists solely to generate hype and goad people into making emotionally based decisions which, as we all know, is an ill-advised way to make important decisions.

      I only hope the Jim Cramer and his ilk will not forget this humbling and change their ways to become more helpful to their viewers and less lackey-like to the Wall Street jackals.

  6. P.S.S Hey Rob dude,you ought to be trading! Oil dropped on yesterday’s report of US inventories bulging. This was a big suprise to most analysts expecting production cuts to balance out inventories!

    It all depends on what facts and data you are using, and of course the assumptions you make!

    Most people make decision on emotions. In my world, decisions are made on facts and data (which is often inaccurate) and then we act emotionally and still fuck it up half of the time. Terribly human I am afraid!

    Enjoyed the extended chat! Keep well my man.


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