Jamesian Philosophy Refreshed

I wrote yesterday's discussion of OSVs not for its own sake (it is not likely that I managed to warn off anyone who was genuinely considering an investment in this loser of an asset) -- but to make a point about supply. The supply of X in general is not "the amount of X that is present on the face of the earth at a particular time." It is "the amount of X that will be brought to market and sold to a buyer at any given price along a range of possible prices." This is what is expressed as the Supply line on a S-D graph. You see a supply curve on the graph above. The quantity of such vessels (in terms of hours in use -- because the vessels are generally chartered by the oil companies working the rigs from the ship owners by the hour) that would be made available to a buyer (charterer) is the X axis. The price AT WHICH that quantity would be supplied is the Y axis. The line curves upward to the right -- that is, the higher the price/charter rate oil companie...

I wrote something recently for one of my content customers about the economics of offshore support vessels (OSVs). These are the specialized ships that provide a range of support services to offshore oil and gas drill platforms. The bottom line is that OSVs are a lousy investment idea. If given an opportunity to invest in such a vessel or in any corporate entity whose main line of business involves owning or operation such vessels: run the other way! There are too many of these darned things and (though I wasn't allowed to put it this bluntly for the commercial cite I was writing for), the oil majors take advantage of the fact that there are so many of them. They pocket the savings. Understanding the oversupply problem requires taking into consideration both cold stacked and warm stacked OSVs. To review: a warm stacked vessel is left at port, but continues in operating condition. It can readily be reactivated. Indeed, a warm stacked vessel continues to have a ...

An odd twist has appeared in our long national debate about opening portions of the Arctic National Wildlife Refuge to oil firms for drilling.. The twist is this: at a time when the oil companies themselves aren't pushing for any new rights in the area, they're about to get those rights handed to them anyway. One of those you'can't-get-it-until-you-no-longer-want-it gifts. Today I want to focus on why the oil companies no longer want this. Tomorrow we'll talk about why they may be about to get it. This part is easy: they don't want it because they're holding too much oil already. The world is awash with the stuff. Recall that in early 2013 the price of Brent (North Sea) crude was above $110 per barrel. It stayed in that neighborhood, which seemed normal at the time, until mid 2014 and then began a historic collapse, getting to $50 a barrel by the end of 2014, then it firmed briefly until the summer of 2015 and collapsed again, getting below $40. (I...

As we discussed yesterday, if a nation's central bank lowers its interest rates, the usual expectation is that it will weaken its currency. Part of the reason why: it will set up a carry trade, in which profiteers will borrow money at its low rates, then exchange that currency for another currency, that issued by a higher-interest rate country, so these profiteers (I use the term without animus -- it simply means "those seeking a profit") can lend out for a higher rate than the one at which they are borrowing, pocketing the difference. This activity, given supply/demand principles predictably weakens the currency the profiteers are leaving and strengthens that into which they're moving. This brings us back to the mystery with which we began. Australia and New Zealand have both recently lowered interest rates. In each case, though, that has corresponded to a strengthening of the currency. Back in late May, you would have needed 1.39 Aussie dollars to buy a US do...