OPEC...are you serious?

OPEC is a shameful organization and we (oil consuming nations) need to do more to aggressively cut ourselves from them.

In July of this year the world was shocked when oil climbed to a record high of $147.27 and during this climb consuming nations asked OPEC to increase production to ease the pain. The International Energy Agency (IEA) even asked OPEC to increase production in 2007 and 2008 to combat the rising price of oil. Saudi Arabia agreed to increase production in May 2008 by 300,000 barrels a day. The rest of OPEC merely dismissed the concerns saying there was nothing that they could do to bring oil prices down.

OPEC was upset with Saudi's decision with OPEC oil ministers decrying the increase at every opportunity. Shokri Ghanem, chairman of Libya's National Oil Cor. was quoted as saying: "I don't know on what ground they took this decision...I think it came in response to the many requests of the United States...if they think it will help the market, I don't think so because the market is already very well supplied.'' OPEC was happy with prices over $140.00 a barrel and they were raking in the cash. A barrel of oil had risen from $70.00 (in May 2007) to over $140.00 a barrel in approximately a year and with that the coffers of OPEC members were exploding. OPEC budgets were swelling and the governments were spending the money left and right. All of this while oil consuming nations were edging into recession due to gas prices that were literally beating people down financially.

Then the current global economic recession took hold and in less than half a year oil has fallen to under $50.00 a barrel and with it the excess riches of OPEC have decreased. The price of oil has literally fallen over $100.00 a barrel and OPEC is not happy. Budget deficits are creeping into the picture and the wealth is being trimmed down as prices continue to fall. Saudi Arabia recently announced that they felt $75.00 a barrel was a "fair" price for oil. I find it fascinating that when the world was hurting OPEC wouldn't cut oil prices...but, now that they are hurting they are going to slash production by 2,000,000 barrels a day starting in January 2009. At the peak price of $147.27 that 2,000,000 barrels would have represented daily revenue of $294,540,000.00. That's right almost two-hundred and ninety-five million dollars...and that 2,000,000 only represents a 3% decrease in production. That same 2,000,000 barrels now only represents $90,000,000.00 at a price of $45.00 a barrel. That is a huge swing of $200,000,000.00. OPEC has to be the most selfish money addicted group of countries in the world and it is time that we give them a taste of their own medicine.

2,000,000 barrels a day...can you believe that. When the world was hurting only Saudi Arabia would boost production and then only by 300,000 barrels a day. Now, that they are on the opposite end of the price they are going to cut oil production by the largest amount ever and in doing so hope to boost oil prices to a "fair" price.

Seriously, screw OPEC. I think most of the world would say that a "fair" price is $25.00 a barrel. So, this is my suggestion:

That 2,000,000 barrels represents (among other things) approximately 39,000,000 gallons of gas (approximately 19.5 gallons of gas can be produced from one 42 gallon barrel of oil). Based on rough figures from the Department of Transportation there are approximately 140,000,000 registered cars on the road in the United States. Let's assume that 50% of these are regularly driven...that means there are 70,000,000 cars on the road being regularly driven. So, if we take the 39,000,000 gallons of gas (the approximate gallons of gas that the 2,000,000 barrel a day production cut represents) and divide that by the 70,000,000 cars that are being driven daily on a regular basis and you come up with .55 gallons per car. That means if every one of those drivers cuts their daily gas intake by approximately a half a gallon per day (or 3.8 gallons a week) the United States alone would negate the production cut by OPEC. This is absolutely doable...I have no doubt that I can cut my personal gas usage by 3.8 gallons a week, heck just driving a little slower and being a bit gentler on the throttle would save that amount. It basically represents 19% of a full tank of gas (based on a 20 gallon gas tank). Just imagine the results of everyone cutting their gas usage by that amount. If you think gas prices are low now...just think of the results this could produce.

I think the world should be furious...and we should as a loud voice give the old "one finger salute" to OPEC. If there ever was a time to become energy independent...now is the time. Let OPEC suffer for once...they were happy when the world was suffering from high gas prices. I didn't hear many voices in OPEC saying a "fair" price was $75.00 a barrel when the price was over $140.00 a barrel.

So, I pledge to you that my family will reduce our gas consumption by at least 3.8 gallons a week for our two cars (daily drivers) when we return to the United States. We will combine errands, plan the most efficient route and generally drive a little slower. I ask every American that is sick of OPEC to do the same. If only 10% of the folks out there do it we would still use approximately 3,850,000 less gallons of gas a day or 197,435 barrels of oil. Just imagine if everyone was committed. Folks, there is a lot of talk out there these days of energy independence and doing the right thing...but, until we (the average American) take things into our own hands we won't get the results we need.

So, pledge to America's future and economic prosperity and cut your fuel usage by just 3.8 gallons a week...that is a small price to pay to give OPEC a clear signal that we will no longer be subject to their greed. If I get enough interest I will create a website where folks can sign up for the 3.8 gallon a week pledge. Forward the link to this blog entry to your friends and spread the word.

Beijing...Crap It's Cold!

Well, here I am in Beijing and let me tell you going from Hong Kong to Beijing is quite an adjustment. Let me just say this...Beijing...crap it's cold!

I arrived here on Sunday evening and will be here through tomorrow...then it is off to Shanghai, then to Shenzhen, and if all goes well back in Hong Kong on the 23rd. Just in time to do some Christmas shopping for the wife on Christmas Eve...I love it when a plan comes together.

Beijing is interesting. Monday and Tuesday were disgusting. The pollution was so bad that it was burning our eyes and throats. I will honestly say this...I rather be shot at than breathing this stuff in constantly. At least when the shooting stops you know you are OK...here...who knows what this is doing to my lungs. I can honestly say I have no idea how people live here...you could not pay me enough to live here. I thought Hong Kong was bad...these last few days in Beijing made Hong Kong's pollution look like an amateur. See the picture below, this was shot in the middle of the afternoon (after lunch) and the sun is completely obscured by pollution. When you can look directly at the sun without sunglasses...you know the pollution is bad. It really is quite disgusting...it is a brown/grey color and it covers everything. The cars have a nice layer of pollution on them after only a few hours of sitting outside...lovely.

Luckily we are staying at the Westin here and if it is good enough for W it is good enough for me. Seriously, the new Westin is where President George Bush stayed during the Olympics...albeit I have not been able to talk my way up to the Presidential Suite yet to see what kind of room he was staying in. I can't complain about mine...so, I am sure his was pretty nice too.

So, I won't bore you with the details...the food is good. We have eaten at some great restaurants since we have Larry with us. Larry is a U.S. based auditor, but is originally from Beijing so here knows the city very well and where to eat. His language skills are also great to have. The Hong Kong members of the team speak Mandarin as well, but seeing how it is Larry's first language...he is obviously the best person when it comes to talking with the locals. My Mandarin lessons have not been for nothing...I have been able to understand a bit here and there...and I can make some basic comments...I need to study more.

Let's see...funny story of the day. You know it is cold inside, when you go to the bathroom and your "stream" steams. Yes, I did say inside...the operations here save money by being frugal with the heaters. Our conference room at the first station we visited was a toasty 58 degrees Fahrenheit and when we cranked up the heat (we were too cold) we were able to get the room up to 68 degrees Fahrenheit after a few hours. The bathroom where the heat is off and the windows are open...I am guessing was around 30 degrees Fahrenheit. We had a little snow this morning...so, we will see how the day progresses. Cheers from Beijing and more to follow. Oh, can someone explain to me why FedEx stock dropped over $10 yesterday...hello...we are still making money and have earnings...doesn't that count for something?

The Domestic Auto Industry...

I am not surprised that the "domestic" auto industry is asking for our (the taxpayers) help. No one with an objective mind and a 4th grade education is lending them money. Literally, no one in the world wants to loan these guys money or buy them...don't you think that should be enough of a reason for Congress to realize that they don't need to sink our money into a dying business?

I am not surprised they are dying...they have been building crap for the last 30 years. Toyota, Honda, Mazda, Audi, BMW, and Mercedes build better, safer, more efficient cars. Surprisingly the execs of Chrysler, GM, and Ford are shocked that they are in trouble. Are these guys missing the big picture or what. It is about choice...when a consumer has the choice to choose a better vehicle at a comparable price...they are going to choose the better vehicle.

I keep hearing these horrible and scary predictions that 10% of the United States depends upon the auto industry for jobs. First off when we talk about the auto industry you have to remember that there are two parts of the auto industry in the United States...foreign and domestic. Surprisingly, (for many) the foreign auto industry in the United States is moving along well, growing, and doing so without labor unions. The domestic auto industry is sucking wind and is knee deep with the labor unions...where as the foreign auto industry is moving along nicely without the labor unions. I think you can all draw your own conclusion from this.

Now, back to economics...if the domestic auto industry does have some hard times...that does not mean the demand for the vehicles they produce disappears. Rather the demand will still be there and other manufacturers (existing or new) will step in to fill the void. What that means is that jobs may shift...but, there would not be a wholesale loss of jobs over a period of time. This is fundamental economics and instead of the media reporting these false and "scary" statements, they need to step back and assess the situation in a factual and non-biased manner. Something I am sure they are incapable of doing.

I think we need to remind our representatives (in both the House of Representatives and the Senate) that they work for us and that they should listen to the intelligent voices of reason out there and not fall for these "scary" predictions based on absolutely nothing. Then again, with most of the elected representatives of this country being lawyers...I am not surprised that they don't understand fundamental economics and business.

I guess we should put it like this for them. If they (insert Representative or Senator name) would not run in the next election would that mean no one else would run...the people still need to be represented...and thus there would be people to step in and take the spot. It is the same way for the auto industry...if Ford, GM, and Chrysler fail...people are still going to need cars and companies are going to step in and fill that void. Maybe that is a little closer to home for our elected representatives...but, we are not talking rocket science here.