Thursday, August 11, 2005

Coming Soon to an Airport Near You?

Airports in Arizona, California, Florida and Nevada recently came within a few days -- and at times within hours -- of running out of jet fuel, according to airline industry officials.

Because of supply bottlenecks, airlines were forced to fly in fuel from other markets and scramble for deliveries by trucks. But these are expensive, short-term fixes that don't address what airline executives consider to be the underlying problem: With passenger traffic rising above levels before Sept. 11, 2001, the nation's aviation business slowly is outgrowing the infrastructure that fuels it...

One of the latest supply snags began around July 20 in Phoenix. The trouble apparently began after Kinder Morgan didn't make a scheduled delivery of jet fuel, at which point carriers began "ferrying" extra fuel to Phoenix from California and Nevada.

The near-shortage in Phoenix gradually spread to airports in Reno, Nev., San Diego and Ontario, Calif. Jet fuel had to be trucked in just to keep the ferrying program to Phoenix alive, executives said.

The crisis was resolved gradually as pipeline deliveries returned to normal and airlines focused on using as little fuel as necessary.—Associated Press

Let me get this straight: of all the stories in the world that make the front page of my online New York Times and my online Wall Street Journal, the fact that jet fuel shortages have forced airlines to fly jet fuel from one airport to another and to use “as little fuel as necessary” somehow doesn’t make the cut?

On the New York Times web site we can, of course, read the latest installment in what Judge Roberts may have written in a letter home from summer camp when he was twelve that might or might not provide a clue about his position on abortion.

I am, of course, making that up—barely. But I am not making up the fact that on the Wall Street Journal site's front page we can read not about the airline industry's jet fuel problem but about how the Chinese government wants Chinese families to use an extra pair of chop sticks when they eat, so as not to contaminate the common food bowl.

Now that is fascinating stuff, and I’m sure it plays into the Journal’s desperate attempt to attract new readers (“Okay, what’s our Chinese angle today…?”)

But when I read of a jet fuel problem that forces airlines to use “as little fuel as necessary,” I wonder just how blind we want to be to what’s causing oil prices to hit $65 a barrel—and ask myself how the editors at those two distinguished bastions of journalism determine that Judge Roberts’ abortion position and China's two-chop-sticks push can overshadow what we may very well look back on as The Energy Crisis of 2005.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.


Ed said...

Journalists can ignore the energy crisis, or they can write articles arguing that there isn't one...

Link to NY Post

OldLineYankee said...

The Wall Street Journal did have the AP story -- on page D4 in the Personal Journal travel section.

Jesse Eisinger said...

Hey Jeff,
That's a tad unfair about the WSJ's news judgment. We are not above making mistakes, of course, and maybe we've made one here. But is there a crisis in our news judgment? I don't see it.

The article you cite is an "Ahed," which is a regular slot on the front page for a whimsical story. We run one every day, barring extraordinary circumstances, and have for decades. Life is serious and so is the news; the WSJ takes its role seriously. But there is also room for whimsy.

-Jesse Eisinger
WSJ columnist

DS said...

The PRICE of oil is not >$65/barrel, it's the FUTURES that are trading at that price. I hate how everyone uses the futures price as the actual price being paid today.

Mad man on the water said...

The issue is not so much who did or did not carry the AP story. The issue is that fuel shortages (be they jet fuel or another fuel) are starting to appear. And for "DS' if you want a peak at the price of oil, spot or futures, one need only look at the futures strip price for crude oil. The press barks about the $65 price today (Sept. 05 NYMEX contract) yet that is the LOWEST price for any of the contracts which expire in the next year. Those prices range from $66.35 (Oct 05) to $67.30 (Jan 06). And Wall Street actually still believes that most (all?) oil producers will have DOWN earnings in 2006. 'Homey don't think so.'

Its_strange said...

Mr. Eisinger, how about covering the many scams and the lack of serious action by the regulators. Front page cover. How about some serious demands for action in the editorial pages and not the RNC/ Bush hero worship... ..Why not review a OSTK or NFI conference call ? ....

awacer said...

Not arguing against the possibility of an energy crisis but could this just be the result of an infrastructure problem? The article does say that passenger traffic is above pre 9/11 levels. Could it just be that storage tanks etc. just are equipped to handle the volume?

Johnny Debacle said...


I think your comment underscores why the traditional media and specifically, newsprint journalism is in such a tough a spot.

Thousands of bloggers covering evertyhing, more responsively with more accountability.

Jeff does a great job in addressing these things you outlined in which people are interested, yet these thing get only occassional coverage which usually lacks depth. That's why people read and continue to read Jeff at increasing rates.

He is willing to address thing in depth and not try and appeal to everyone. The WSJ and its ilk are in a tough position of being relative to generalists in an age of rapid informational specialization; death by 10,000 blogs.

Long or Short?

Jeff Matthews said...

Jesse: in the words of Monty Python, "It's a fair cop"...I did take a cheap shot picking the China chop stock story out of the WSJ to contrast with the jet fuel shortage reportage.

However, I do think a potential jet fuel shortage of the type described in the AP story deserves not to be hidden on Page 4 of the D-Section.

As for truly cheap shops, "It's Strange" takes one by picking on Jesse Eisinger--who happens to be one of the most aggressive reporters at the WSJ and has done more than his share of exposing hypsters and scamsters.

Finally, "ds" points out the difference between the crude oil futures prices quoted widely in the media and the actual crude itself...however, the crude futures that touched $65 yesterday represent barrels to be delivered next month.

The difference between the price of crude oil for delivery in 30 days and the current spot market price of crude is, I think, a distinction without much of a difference.

The bottom line is, oil prices are very high and starting to work their way through the system. As the Fed is starting to figure out.

Its_strange said...

"Truly a cheap shot" cause i make a simple request from one of the better reporters on the WSJ ? Fact is i would love to know how many stories his editors have killed. And when i think of exposing scams the WSJ doesn't come to mind ...

Jonah said...

HEy Jeff,
I know you follow Overstock with a magnifine glass. It was just reportes that Dr. Patrick M. Byrne purchased 30,000 shares at 42. Feel free to comment.

Its_strange said...

OSTK also filed suit against Rocker....Perhaps we will discover whats behind the diamond deal if it goes to discovery....

dthorn said...

Great post, Its the proverbial elephant in the room. NO NEW REFINERIES SINCE ~1973!!!! Now perhaps Msgr Eisinger could phrase it better, but that should be the daily headline until someone does something about the underinvestment in our energy infrastructure. (Jesse as a journalist who likes to dish it out, arent you being a little thin skinned on this obvious hyperbole by Jeff, you may want to address his point that the journal screwed up in not realizing an important story and burrying it in the D section)

I will spare everyone the full rant, but why isnt there a new pebble bed nuclear reactor under construction in every state? (China's building them)

While there may be an oil supply issue (CVX 18% replacement ratio)long term, It isn't the most immediate issue, forward demand cover days of crude are higher than average for this time of year.

I choose to blame Gov't Regulation, NIMBY, the Greens, and backward looking oil execs focused on midcycle prices in the $20s in that order for causing the underinvestment in energy which is violating my rights to access to cheap gas. I am not happy and if a lawyer is reading this I would like to sue.

Its_strange said...

Here you go Jesse...Find out whats the real deal with OSTK and thier lawyer.Their press release sounds more like a movie review...This is one strange group , get the WSJ to cut you loose

BelowTheCrowd said...

It's strange,

Hey, DowJones already has one reporter who OSTK refuses to talk to anymore because he took a critical look. That's Herb's job!

But back to the point: It's not just refineries, but everything else in the infrastructure. The problem with Phoenix was a pipeline that was overloaded. Since the same pipeline is often used for carrying various different types of refined products at different times, excess demand for any one product can take up pipeline capacity that is used by all products. It seems that in this case, jet fuel got squeezed a bit too hard, probably by demand for unleaded.

Makes no difference if there's enough refinery capacity if there's no way to get the fuel to where it's needed. I recall that the pipeline that terminates in Phoenix originates in Texas and the alternative is a very long truck drive from either Texas or California.

Its_strange said...

well Bob O'Brien and NCANS were looking for people who sold OSTK at a loss last week...Seems to me it show Bob and Patrick have been working together for some time now

Gnanakan said...

Hey Jeff,
If you say "I am, of course, making that up" Why put "I Am Not Making This Up" after your name?

Stuck_in_Sarasota said...

OSTK's Byrne has officially lost his mind. Suing short-sellers, and holding a conference call to, in essence, thump his chest over it. You've got to be kidding me.

As "ItsStrange" noted earlier, did Byrne's attorneys not inform him that the discovery phase of this suit will expose OSTK for what it really is?

Byrne suing Rocker Partners is akin to having a dead body in your car trunk and flagging a cop down to help you change a flat tire.

mfairview said...


Do you think OSTK, a publicly traded company that reports quarterly, has more to worry about then a Hedgefund (with offshore locations) about books?

As I posted earlier, I see very little distinction between this suit and the ones that Spitzer went after regarding brokerage houses who's analysts were giving ratings on companies favorable to those traders from the same house. I suppose the CEO could have waited for Spitzer to come along, but why does that matter?

AllenCap said...

Hey Jeff, don't know if you saw this or not. It's right off of Valero's last quarterly earnings release.

"So far in the third quarter, distillate margins have been above gasoline margins in most regions. For example, July gasoline margins on the Gulf Coast have averaged around 8.50 a barrel while heating oil margins have averaged nearly 10.00 per barrel, with premiums for on-road diesel and jet fuel adding 1 - 3 per barrel to those heating oil margins. As a result, for the first time in our history we have been running our refineries to maximize distillate production during july."

"The incentive for refiners to maximize distallate production over gasoline has led to lower gasoline yields in the US. At the same time, US gasoline demand is up about 1% over last year's record levels, despite higher pump prices....With the days-of-supply of both distallate and gasoline near five-year lows, any major disruptions in refinery operations could have a significant impact on margins."

July 26, 2005


The two things that really put the hook in me were:

1. They are producing distillate in the middle of summer driving season because it is almost $5/barrel more profitable. Wow. What are the gasoline stocks and retail prices going to look like?

2. "any major disruptions" what a hurricane?? The state of Louisiana being shut down? Rigs floating in the gulf?

ps..great blog. It's nice to see someone who shares many of the same viewpoints as myself. I have a tremendous amount of fun reading it.