As government reports go this one’s fairly pedestrian: Each week the Energy Information Administration posts the data for oil, refinery utilization, gasoline, and distillate fuels on hand. And for the first week of June, the EIA reported that our crude oil inventories rose by 2.1 million barrels, giving us 436.6 million barrels on hand; an added note mentioned that this number was “in the lower half of the average range for this time of year.”
Now, that sounds almost as if having a remarkable 436.6 million barrels of oil on hand is not quite up to snuff. Yet if one checks the EIA’s own data, looking at the first week of June for every year since it started keeping these records, one finds that at this time of year the United States has an average of 339,805,000 barrels on hand — almost 100 million fewer barrels of oil ready to be refined than we did last week. So it’s hard to see how the current total is “in the lower half of the average range for this time of year.”
Even taking the average of the last five years, one finds it totals 449,061,000 barrels of oil on hand the first week of June; but that’s only because in 2016 and 2017 we had over 500 million barrels of oil on hand in that week. That two-year super-glut skewed the average higher.
This data is supposed to help judge whether or not oil production, storage, and refinery usage are in line with economic demands; it probably doesn’t, but that’s the logic of putting out such a report. But we live in a day and age when speculation determines market prices — which have nothing to do with the amount of oil on hand anymore.
If you doubt that, 19 years ago, before the commodities market was deregulated, the price of oil collapsed all the way to $10, a response to the Asian Financial Crisis that devastated many countries there, just not China. The data shows we had only 316.5 million barrels of oil on hand the first week of June in 1999, or 120 million barrels fewer than today — yet oil still got down to ten bucks.
By the same token, a decade ago as oil was about to crest $145 a barrel we had 284.6 million barrels on hand; we had the same amount or less on hand in 2004, 2003, and in 2000, but in those years oil didn’t react by jumping to nearly $150 a barrel.
Soft Numbers, Semi-Facts
Here’s another reality check. Not one of the official figures about oil used in this column is the same as was released just a couple of years ago. That’s right, the oil figures have been officially altered. Back in late 2016, when the EIA decided to recalculate how it determined the amount of oil we had in inventory, its new math logic dictated that 31 million barrels of oil, on hand but held at leased federal land, was no longer to be counted in the weekly storage numbers. And presto: Magically, 31 million barrels of oil disappeared from the spreadsheets. To make sure no one remembers that the government did this, the EIA revised all numbers lower in reports going back to 1982.
In a way this is similar to the oil storage facilities at Cushing, Oklahoma, which is the destination for contracts in West Texas Intermediate crude. The idea behind that oil storage area was that, when Cushing’s oil tanks filled completely, that abundant supply would put downward pressure on the price of crude. Likewise, when there was plenty of oil capacity still available and new shipments could be accepted, WTI pricing could rise. However, over the past decade an obvious way emerged for defeating the concept of keeping a thumb on WTI oil pricing: Simply build more oil storage in Cushing.
That’s become a huge business in Cushing over the past few years. Back in 2005, according to the Oklahoma City paper, Cushing held 26 million barrels, but even at that early date another 125 tanks were being planned or already under construction.
Reuters picked up the story four years later, pointing out that another 5.2 million barrels of oil storage had been added that year alone. (Keep in mind, that was year one of the Financial Meltdown.) And today there’s around 85 million barrels of oil storage capacity in Cushing, Oklahoma, so it is no longer a moderating force in oil pricing. Then again, as America is once again exporting our oil, maybe the entire pricing concept of WTI crude contracts’ going to Cushing is outdated.
The point is that that we all have to deal with real hard numbers every day, the type our 4th-grade math teachers forced into our heads without once telling us that someday we’d need them to balance our checkbooks. But the government and many PR artists do a fine job of making us think that their data is accurate and forever, when it fact it’s subject to change at will.
Imagine No UAW
How about this one? Since 1979 the U.S. auto industry has lost two-thirds of its unionized workers. That certainly came to mind during the chaos of recent trade negotiations, when we demanded that automobile manufacturing jobs come back to America. But when it’s pointed out that we built slightly more vehicles inside the United States last year than we built in 1979, we’re forced to question what politicians have been pushing.
First, the obvious. Many automobile factories exist in America that don’t use unionized labor. And in many cases those jobs pay surprisingly high wages for where they are. The Japanese found out a long time ago that if one treats one’s American workforce right, where their pay and bonuses are in line with or close to the unionized figures, one will have a happy workforce and can deal with them directly, instead of through union representatives. If Detroit had tried those same approaches with their workforces back late in the Great Depression, the United Autoworkers might never have come into being.
Second, there’s been another huge change over the past 30 years, and that’s the level of automation that most modern automobile factories use. Many labor experts believe that’s cost almost as many autoworkers their jobs than jobs’ migration to lower labor cost countries.
Third, Honda led the way for Japanese manufacturers to build here when it opened a Gold Wing motorcycle factory in Marysville, Ohio. It was quickly expanded and would start building Honda Accords in 1982. Other foreign automakers soon followed. So we are finishing up a 40-year period of foreign automakers coming to America, too.
Once you realize that in most years we build around the same number of vehicles in the U.S. as we did nearly 40 years ago, does that in any way change how you feel about our international trade agreements?
The “China price”
A generation ago there was another person ripping up agreements with foreign and domestic trade partners, although these were parts suppliers. That was Jose “Inikki” Lopez, who took over parts purchasing for General Motors internationally, and literally tore up all of the contracts, demanding ever lower prices on virtually everything GM needed. But in spite of GM’s delight at how Lopez was forcing down parts pricing, he quickly bolted for Volkswagen. That automaker wanted the same savage reorganization of its parts cost structure. VW got him to leave GM by promising they would build his Dream Factory in Spain if he came. But that scheme didn’t last very long.
VW discovered that Lopez had left GM with some corporate secrets, including the plans for that Dream Factory, after GM sued. Volkswagen was forced to fire Lopez and, as part of a settlement, agreed to purchase $1 billion worth of parts from GM’s in-house companies. GM then spun off its parts division in 1999, in spite of having profited from the “Lopez” settlement with VW.
Even before Lopez ascended to the top job acquiring parts for General Motors and ripping up long-standing contracts, though, many parts manufacturers had already moved south of the border to save on labor costs. And today the auto industry works off what’s called “the China price;” if you’re manufacturing parts, whether here in the States or in Mexico, or any other low-cost country, your company is told that if your bid isn’t in line with what automakers can purchase those parts for in China, don’t even bother submitting it. Ah, the spirit of Inikki Lopez lives on.
That’s the part of the equation that no one is talking about in NAFTA renegotiations or any other trade talk at the moment. So what if some parts manufacturing comes back to America, if those same companies are told, “Either match the price from China, or else”? Because that’s the reality in the auto industry.
Fogging the Numbers
The thing is, politicians and governments at all levels have shifted numbers and selling points that aren’t quite accurate to the public for decades. Maybe it’s just in our economic DNA. A decade ago Kevin Phillips, the man who came up with the Southern Strategy for Richard Nixon and the GOP in the late Sixties, wrote a Harper’s magazine column, “Numbers Racket.” In it he showed how the government alters data all the time to show that things are better than they are, or to mislead the public so politicians don’t have to deal with that pesky “accountability” thing.
After all, it was John Kennedy’s administration that first moved the out-of-work Americans who had stopped looking for a job out of the column marked “Unemployed” and into one labeled “Discouraged Workers.” (Clinton would codify and expand this concept in 1994, but to be fair it was something the Bush I administration had also been working toward.)
LBJ balanced the budget with a tax increase during his Great Society Program and a full-scale war in Vietnam in 1969; and part of that came from combining Social Security into the rest of the outlays in a “unified budget.”
Richard Nixon came up with a Core Inflation Index that excluded critical items like food and energy, or as someone wrote, “inflation with inflation excluded.” Recently our jobless rate hit what was called a record low by some in the media, although their columns pointed out that it only tied the jobless rates from 2000 and 1969.
No, it didn’t. Again, like the 31 million barrels of oil the EIA scrubbed from its reporting two years ago, someone has jacked with how we calculated the employment numbers, making then-and-now comparisons valueless.
Ronald Reagan decided to count our U.S.-based active military in the employment numbers in the early Eighties, which slightly lowered the unemployment rate; while, as stated earlier, Bill Clinton codified and expanded the employment statistics by kicking those who’d given up even trying to find a job off the “unemployed” list. Oh, and in the past 10 years we’ve gone from a Labor Force Participation Rate of just over 66 percent to under 63 percent today. That’s a huge drop in the number of people claiming they are part of the employable workforce, though some of the drop is likely the first of the Baby Boomers retiring.
Just those alterations to the formula and the workforce prove that today’s jobless rate is not actually the same as it was in 1969.
Then again, does anyone remember all the historical references about the Booming Fifties Economy in America? Well, the Labor Force Participation Rate barely cracked 60 percent in one of those years. When the Beatles showed up in America, that same Labor Force Participation Rate wasn’t even over 59 percent. Further, as those Booming Fifties became the Swinging Sixties, the poverty rate in America was still nearly 25 percent. The official numbers were more accurate then; it’s been left to our faulty memories to alter the reality of that decade.
All of us have to use 4th-grade math just to balance our checkbooks, or to check our budgets to make sure we can afford that new car. Government alters the way it calculates its data regularly, though it does leave footnotes in the reports to show how things have been changed.
But don’t be misled. Elected officials make certain that they’re the ones who benefit from the changes. We keep forgetting how often they move the goalposts. That is until something major happens and we have to face reality.
© Ed Wallace 2018
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: email@example.com