All the mainstream news publications today are just catching up with my weekend Deeper Dive for paying subscribers, which reported a sea change in the war with Iran (literally). One of the highly consequential stories I included in my weekend edition that I didn’t see in mainstream news until about twelve hours after I published my own article was the complete knock-out of Saudi Arabia’s major east-west pipeline. That line had been rerouting 4% of global oil supply from the Hormuz side of the Arabian Peninsula to its escape route in the Red Sea. Completely shutting down that alternative route will obviously impact oil prices, which the events of last week certainly did, causing diesel fuel to spike the highest it’s ever been in history.
What made this a Red Sea change was the main news I presented of a historically huge and rapid advancement of the Houthis to gain full control of Western Yemen, which no mainline news source was yet carrying. I couldn’t even find the latest gains on Google. Mainstream sources had covered the advance along the strait the Houthis had achieved up to Perim Island, which is right in the chokepoint; but the massive sweep further inland and around the point all the way to seize the major port city of Aden, gaining full control of many regions, was a blockbuster scoop that I found info about in only one of my resources; but the info. was clear, so I ran it. There was in my mind no question about how fast the Houthi’s sweeping gains had been in fully taking over the Bab al-Mandeb (the Gate of Tears) with a deep penetration inland to safeguard all their firing position in areas that used to be under the Saudi military.
I also reported, as the news was just coming in, that Saudi Crown Prince and Prime Minister Mohammed bin Salman (MBS) had called Trump twice to implore him to start bombing the Houthis during that advancement before they gained full control of that region, and Trump twice turned the Saudis robust pleas down, leaving the Saudis desperate and intensely frustrated.
The whole basis for the petrodollar agreement collapsed right then and there. The Saudis only started selling oil solely in US dollars back in 1974 because it guaranteed US protection from Iran and anyone else, which it and other OPEC nations did for decades. That surely just ended because apparently the US is not capable of taking on another front on another sea in this war that it started, or political pressure against Trump at home has risen high enough in the election season that he dare not risk kicking his Iran war up a notch.
So, the Saudis lost—bigly— this weekend, and, with that loss, you can flush the petrodollar because all of those US military bases in Saudi Arabia that were there, in part, to fulfill America’s promise of protection have become the reason Saudi Arabia is being attacked so viciously by Iran. That turns all those bases into nothing but liabilities now, rather than assets, since they can offer no more assistance in Saudi Arabia’s worst hour. Other Arab nations with US bases have certainly all taken note with equal horror.
It’s showing up in the news now, though.
The US offers empty assurances
Into the now rapidly spiraling energy crisis, US Secretary of Energy, Chris Wright, attempted to speak some calm into markets. He seems to specialize in saying stupid things. This time he indicated the total shutdown of the east-west pipeline was not a huge concern because the Saudis plan to have the pipeline fully “running very soon.” Since he is always saying empty stuff like that, it would appear the energy secretary’s brain doesn’t have the energy to run a lightbulb.
With the Houthis having seized full control of western end of Yemen, which was generally under Saudi military control until this Friday, the Houthis have gained a lot more missile firing platforms and drone-launching areas along the Saudi border that are now uninhibited, at least locally, by the Saudis from stopping them. The Saudis even fled so fast, Biden style, that they left some valuable equipment behind.
So, it is not hard to figure out what the Houthi game plan will be for that major pipeline, making me think the energy secretary cannot be this dumb, so he must just be another Team Trump liar. (It is not hard to figure out what Iraq will do either because it has also done damage to that route.) With the pipeline totally dead, both partied will (if they are as smart as I suspect they are) wait until the Saudis spend a lot of money and time getting the pumping station back online and until the oil starts flowing again. Then they will immediately blow it all back up, leaving another big mess of spilled and burned oil all over the totally destroyed equipment. Each time, the Saudis will have to clean up the big, charred oil spill before they can even start to rebuild.
If they do not blow up that station, they will simply blow up one of the several others along the line, all of which are essential to keeping the oil moving. There is no sense blowing any more of the line up until it’s back in operation. Might as well let the Saudis have fun and spend money like it is going out of style (because it IS) fixing it all and then blow it all up again. And that means the pipeline will not likely be “running very soon,” as the energy secretary lamely assured the world, because it is now part of Iran’s “escalation trap” strategy to keep it cut off. Once the next step up the escalator has moved into place, there is no reason to take it out of play anymore than Iran has done with its blockade of Hormuz.
And, while we are on the subject of Team Trump’s lies, lets just also note today that Trump repeated his forever lie during the forever war that “Iran desperately wants to make a deal, but I will be the one to decide if a deal is made.” Uh huh! That’s called “trying to put a good face on it” or “sour grapes”: “I don’t really want a deal so that is why we are no longer negotiating.”
Costco is cracking prices higher in its own oil shortage
With both Brent and WTI now staying solidly above $100 per barrel because of the events of last week, especially on Friday, it is not surprising that we are also now seeing another one of those kinds of shortages I said we would likely see before the big gas-station fuel shortages. Costco has just announced that it is putting a cap on how much synthetic oil its customers can buy. (I didn’t realize this, but synthetic oil is still about 80% petroleum.)
There are two reasons Costco would be capping consumer purchases to one, five-quart container per purchase with a total weekly maximum of two. The usual reason for caps like this are that a retailer is concerned it may not be able to supply enough to fill demand, and it wants to make sure every customer gets some. The second reason given in the ariticle below is that Costco may be expecting the price of its oil to go up rapidly and may be expecting that price scares will drive customers to hoarding the oil. That concern is not just about some customers not getting any; it is also an awareness that Costco will miss out on selling the same oil at a much higher price soon if consumers all stockpile as much as they can right now to avoid buying later … and even a concern that consumers and other small retailers may hose it all up in order to sell it at a nice markup a month or two down the road.
So, we are at that clearing-the-toilet-paper-off-the-shelves-in-a-day mode where caps are essential to avoid hoarding and empty shelves. Only this time it is in motor oil, and it is not as if Costco’s motor oil is cheap anymore. The price of their 5-quart container of top synthetic (enough for one oil change on most cars) has already risen from the mid-thirties to $58. Costco had maintained the lower price for years. It’s gone … and may eventually be a distant memory.
You may remember months ago, when I started talking about shortages coming out of this energy crisis, I said they would likely show up first on the shelves of lubricants. Well, now lubricant shortages that some retailers did start to experience a couple of months ago are even hitting the mighty Costco. When Costco, one of the most efficient retailers at quantity purchases in the world, starts running out, you know the situation is getting squeaky tight. And you don’t want squeaky with oil.
US oil reserves tank
Well, in oil terms, they did the opposite of tank. They left tanks and those big, salty holes in the ground where they are stored. The US just sailed past another bad benchmark: the US Strategic Petroleum Reserve (SPR) just hit a 44-year low. It had been hovering around a 43-year low, which took it back to when Reagan was still filling the new reserve up for the first time. Now we are back down to the level they had it filled at a whole year before. US commercially held inventories also fell by 1.2-million barrels last week. Crude-oil supply is still running in the wrong direction for the US, offering no hope to help take down those record diesel prices.
Oil is pumping up all other inflation
It is completely expected (here anyway) that CPI inflation was just reported to have back to rising. You probably remember my dismissing the two-month dip we saw in both CPI and PCE when oil prices fell during the now infamous Trump MoU. I argued, counter to Team Trump, that the MoU would fail, and crude prices would shoot back up as soon as it did, so the dip in prices would prove temporary. I warned you to expect to see the inflation re-emerge in the report for August. It did.
The rise is only a small return back up the inflation highway right now but that is because only the last week of August experienced the upturn in crude prices, and only this past week in September did they jolt back solidly above $100/bbl. So, when the CPI and PCE inflation data for September come in, expect the whole “transitory,” as I called it, price decrease to be over, and we’re back in reality land.
Nothing to treasure about oil right now
As a result of all of this turmoil that happened over the past week, especially the impacts coming to inflation, the 10YR US Treasury finally punched through 5%, hitting the highest point it has seen since 2007, almost two decades ago.
It’s sometimes hard for me to decide if I should put bond news under the “Economania” section, which is largely about market news or economic data, or “Money Matters” section where I usually put bond news. If the article is more about how bond yields will impact management of the nation’s currency, such as how bond rates are being manipulated by the Fed to fight inflation or how that inflation is the driver of interest rates, I put the article under “Money Matters.” If the story is just about the bond market or its impact on other markets, such as stocks, I put it under “Economania.”
With bonds just hitting a high yield not seen in nearly two decades, it was clear they go under the market news section, rather than the money news section. At 5% they have not only passed their own market milestone of nearly twenty year, but they will be impacting stock markets around the world as another article below explains today, most directly, of course, US stocks.
There is an equilibrium mechanism that kicks in here, though, that can mitigate the move in bond yields. The last time Treasuries cleared this bar, it resulted in a huge increase in demand for Treasury bonds because getting 5% interest for doing nothing but sitting on a pile of safely stored money is pretty attractive to many investors. That seems to be the case today, too, because yields took a big plunge after punching up to 5.011%, which indicates a flood of investors poured in to grab those higher rates the government will be paying out.
So, there we are, big crude oil prices, big diesel prices, big lubricant prices with short supply, big bond yields, all because of big losses on the battlefield resulting in a new big front opening up along the Red Sea, all being covered with more big lies.
(Today’s headlines are free for everyone, but please consider becoming one of those who help keep the truth in the mail, and thank you to those who do.)
Economania (national & global economic collapse plus market news)
The 10-Year Treasury Yield Briefly Makes it over 5%. Last Time, 5% Instantly Opened the Floodgates of Demand (Which seems to be the case today, too)
Scott Bessent warned president the bond market ‘has taken down more governments than howitzers’
Why 5% is the Treasury-yield level that freaks investors out
Real-Estate Rubble (housing, commercial & global real-estate bubble trouble)
Money Matters (monetary policy, metals, cryptos, currency wars & going cashless)
Inflation Factors (too much money chasing too few goods due to weather, sanctions, tariffs, quarantines, etc.)
Costco Starts Rationing Motor Oil. Could Walmart Be Next?
Saudi Arabia Could Run Out of Oil For Export Within Days as Pipeline Shut
U.S. Petroleum Reserve Falls to 285.4 Million Barrels (putting it now at a 44-year low)
Inflation Not Going Back into the Bottle: CPI, Core CPI, and Core Services CPI Bounce Back
US Energy Sec. Wright Says Saudi’s Critical East-West Oil Pipeline Will Restart “Very Soon”
Wars & Rumors of War (including cyberwar, civil unrest and revolts)
Saudi Arabia Faces ‘Worst-Case Scenario’ After Being Rebuffed by Trump
Houthis target Saudi base as Iran denies involvement in Yemen war
Saudi oil refinery up in smoke as huge fire burns amid Houthi strikes
Missile crisis: The hard truths about America’s military arsenal
Oil tanker exploded after colliding with mines in Hormuz, Iran’s Fars reports
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Israeli-made film about Gaza gets 25-minute ovation at Venice premiere
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Digital Dominance (AI threats, transhumanism, hacks & cyberattacks, etc.)
America’s Fast-Food Chains Are Making a Big Pivot—Back to Humans
Political Pandemonium & Social Senescence (socio-political issues & events)
Trump implores Republicans to vote in November at unusual midterm convention
‘It’s a Cult’: Trump Raked Over the Coals for Bizarre Pledge as He Closed Out Midterm Convention
Why a lawyer who launched the Christian legal movement believes it’s gone astray
DHS watchdog finds immigrants held at ‘Alligator Alcatraz’ in outdoor cages the size of phone booths
Deep Domination (globalism, unelected government, unconstitutional government & censorship)
Calamity, Catastrophe & Climate Craziness
White House slammed for crediting Donald Trump for quiet hurricane season (Did he shut up so all the hot air went away?)
Off-the-Beat News & Just Plain Offbeat News
The Trump Alien ‘Disclosure Speech’ Rumors Are Reaching a Fever Pitch
An early sign of dementia may be hiding in your voice, new research suggests
Hope for Hard Times
Sometimes Hope Has Four Legs: Michael Hingson was on the 78th floor of the North Tower on September 11. His guide dog, Roselle, was under his desk when the plane hit.
Doomer Humor
When you first wrote about the lubricant issue (June?) I forwarded it to my two kids.
One has a landscape business and the other one roams the country in his diesel van.
Both of them, along with me, ordered enough of the correct oil for 4 oil changes. So we are well stocked and say thank you very much.
The landscape kid has a F250 diesel. When he bought the oil it was $100 per batch. It’s still available today but it’s $150. I’ll bet it $200 pretty soon.
He paid 6.49 for diesel today. As he said, you can’t run a small business profitably when your #2 input cost (after labor) goes up by 60% within 90 days.
All three of us are grateful you provided that heads up!!