Specious Argument

My July forecast for West Texas Intermediate (WTI) is that it will range between $100 to $120 per barrel, and this range is ten dollars lower than my June forecast.

When higher than expected inflation numbers, at over 8 percent, were announced in June, the market immediately expected the Fed would raise rates by 0.75 percent, which it did. The Fed seems committed to fighting inflation by raising rates and, thereby, increasing the odds of a recession, although the depth and length of the recession remain uncertain. Investors are fearful about the effects of a recession on oil prices, and consequently oil prices and oil equities fell in sympathy.

Many investors, however, remain bullish because worldwide inventories continue to decline. Even assuming a normal recession, many expect that the physical market for oil will continue to tighten. Eric Nuttall, from Ninepoint Partners, recently provided a worthwhile podcast and webinar with Amrita Sen from Energy Aspects. I highly encourage you to listen to the podcast and watch the webinar.

Even at WTI prices of about $110 per barrel, consumers are facing high gasoline prices because refinery crack spreads are extraordinarily high because of a lack of refining capacity. A refinery crack spread is the difference between revenue and costs for the physical outputs and inputs. A simplistic way to determine the crack spread is to use the 3:2:1 ratio of oil, gasoline, and distillate. Three barrels of WTI oil produce two barrels of gasoline and one barrel of distillate or heavy oil. Toward the end of the day on June 27, WTI was about $110 per barrel, RBOB gasoline futures were about $3.75 per gallon, and heavy oil futures, or distillate, were about $4.15 per gallon. Converting gallons to barrels and working through the math, the crack spread is about $53.10 per barrel. Crack spreads typically range between three dollars and $10 per barrel. For consumers, the gasoline prices at the pump are equivalent to about $153 (=110+53-10) WTI prices.

For more information on crack spreads, I encourage you to visit the EIA website.

As already stated, crack spreads are high because of a lack of refining capacity. Companies are loathe to build new refineries in North America because of the strenuous regulatory and environmental hurdles and because of the expected transition away from fossil fuels. Please view CNBC’s interview with Exxon’s Darren Woods. Most of the additional capacity in recent years comes from refinery creep, where existing refineries make modifications that allow for lower costs, higher throughput, or some combination.

Are there downside risks to my forecast? Yes, of course. If investors increase their expectations for a severe recession, then oil may sell off. Next, the Iran negotiations, known as the JCPOA, have shown more signs of life again. There were some meetings and calls made late last week. If a deal is struck in the near future, I am not sure how much that may influence oil. Some believe that the effects would be negligible because Iran is already exporting a lot. Other factors include a resurgence of COVID in China, a faster and harder economic slowdown, and some development with Russia that enables it to increase production.

Risks to the upside include continued oil inventory withdrawals with the physical markets tightening even further, resumption of the Chinese economy to normal activity, and Russia’s exports declining significantly.

Regarding recession concerns, the Wall Street Journal article “Consumer Sentiment at Record Low Is Another Ominous Sign for Economy” illustrates consumers’ concerns.

Consumer sentiment fell to its lowest point on record, reflecting that elevated inflation is weighing on Americans’ moods and adding to indicators that point to a slowing in the world’s largest economy.

The University of Michigan’s gauge of consumer sentiment reached a final reading of 50 in June. That was the lowest reading on record going back to 1952, and down from both an initial reading earlier in the month and May’s 58.4 reading.

New-home sales rose 10.7% in May to a seasonally adjusted annual rate of 696,000, separate data Friday from the Commerce Department showed. Economists, however, expect rising mortgage rates to weigh on sales later this year.

Similarly in Canada, as reported by the CBC in its article “Canadians are dispirited, cutting back on costs amid inflation highs: study,” consumers are also feeling the burden of higher inflation.

With inflation at a 39-year high—and banks hiking interest rates to avoid economic recession—many Canadians are said to be distressed and dispirited as they cut back to manage the rising cost of living.

A new study from the polling non-profit Angus Reid Institute shows that 45 per cent of Canadians believe they are worse off now than they were at this time last year. Inflation is now at 7.7 per cent, the highest it has been since 1983.

With grocery and gas prices skyrocketing, Canadians are trying to spend less as their personal costs go up. Almost half say they are now seeking out alternative modes of transport to avoid filling up their gas tanks.

As noted in the CBC article, some Canadians are already reducing their demand for gasoline; there is already some demand destruction taking place.

This bad news may reduce inflation because the economy has begun or will begin slowing. If inflation begins to soften, the Fed may not need to hike rates as aggressively as feared.

My own bias remains bullish on oil prices. Even though I am bullish, I will continue to watch the different factors affecting oil prices and react accordingly.

One last comment, the markets are volatile as evidenced by a recent VIX reading at about 27. That implies investors have a lot of uncertainty. I share that uncertainty because there are so many unknowns that may have a dramatic effect on the outlook for the overall economy and on the price of oil.

In last month’s update, I was unable to provide a forecast because China continued to battle COVID, Joint Comprehensive Plan of Action (JCPOA) negotiations were still unresolved, the market belief that the Fed will increase rates aggressively, Europe was considering sanctioning Russian oil, and the war in Ukraine continuing to rage. While all these factors continue to be true in varying degrees, the market appears to be acclimatizing itself to this new, harsh environment.

My forecast is that West Texas Intermediate (WTI) oil price will range between $110 to $130 per barrel during the month of June. With inflation in the high single digits in Europe and the US, central banks are determined to raise rates. During the past month, stocks have been volatile and were down significantly before rebounding in late May. Even as I write this post, the VIX is hovering around 26 percent, which is high. If the economy continues to struggle with interest rate increases, oil prices may fall in sympathy with other financial assets. On the other hand, as Europe continues to reduce its dependence on Russian oil and gas, oil prices may well go higher. On balance, I am more concerned about oil prices surpassing the high end of my range than the lower end because I expect the oil market to continue to tighten.

Some might be inclined to think that a $20 price range forecast is excessive. When oil prices were in the $60s, I gave a $10 price range. Now that oil prices have roughly doubled and in a continuing uncertain geopolitical and economic environment, assuming no major events that might cause an oil price shock in either direction, I am comfortable with a $20 price range. Also, the U.S. Energy Information Administration’s “Short-Term Energy Outlook” released on May 10 similarly used a reasonably wide range.

EIA May 2022 Short-Term Energy Outlook Oil Price Confidence Intervals

On the topic of inflation, in a May 30 op-ed article (subscription required) in the Wall Street Journal, President Biden stated the following:

First, the Federal Reserve has a primary responsibility to control inflation. My predecessor demeaned the Fed, and past presidents have sought to influence its decisions inappropriately during periods of elevated inflation. I won’t do this. I have appointed highly qualified people from both parties to lead that institution. I agree with their assessment that fighting inflation is our top economic challenge right now.

Second, we need to take every practical step to make things more affordable for families during this moment of economic uncertainty—and to boost the productive capacity of our economy over time. The price at the pump is elevated in large part because Russian oil, gas and refining capacity are off the market. We can’t let up on our global effort to punish Mr. Putin for what he’s done, and we must mitigate these effects for American consumers. That is why I led the largest release from global oil reserves in history. Congress could help right away by passing clean energy tax credits and investments that I have proposed. A dozen CEOs of America’s largest utility companies told me earlier this year that my plan would reduce the average family’s annual utility bills by $500 and accelerate our transition from energy produced by autocrats.

…

Third, we need to keep reducing the federal deficit, which will help ease price pressures. Last week the nonpartisan Congressional Budget Office projected that the deficit will fall by $1.7 trillion this year—the largest reduction in history. That will leave the deficit as a share of the economy lower than prepandemic levels and lower than CBO projected for this year before the American Rescue Plan passed. This deficit progress wasn’t preordained. In addition to winding down emergency programs responsibly, about half the reduction is driven by an increase in revenue—as my economic policies powered a rapid recovery.

Regardless of one’s political leaning, we can all feel the effects of inflation. How successful politicians and central banks will be in fighting inflation without causing a recession remains to be seen.

As the West continues to take action against Russia, I expect oil and gas markets to continue to tighten. As mentioned in the May 31 article (subscription required) “EU’s Ban on Russian Oil Adds Stress to Region’s Economies” in the Wall Street Journal, Europe is taking active steps to reduce its dependence on Russian oil.

The European Union is set to impose its toughest sanctions yet on Russia, banning imports of its oil and blocking insurers from covering its cargoes of crude, officials and diplomats say, as the West seeks to deprive Moscow of cash it needs to fund the war on Ukraine and keep its economy functioning.

The sanctions, which are expected to be completed in the coming days, are harsher than expected. The ban on insurers will cover tankers carrying Russian oil anywhere in the world. These sanctions could undercut Russia’s efforts to sell its oil in Asia. European companies insure most of the world’s oil trade.

The embargo is a high-risk strategy for the EU, forcing the bloc to break its dependency on cheap Russian energy. It is likely to fuel inflation already running at the highest pace in decades on both sides of the Atlantic.

Just as I was drafting this article, the Wall Street Journal reported (subscription required) in an article titled “OPEC Weighs Suspending Russia From Oil-Production Deal” that some OPEC members are exploring Russia’s participation in an oil-production deal.

Some OPEC members are exploring the idea of suspending Russia’s participation in an oil-production deal as Western sanctions and a partial European ban begin to undercut Moscow’s ability to pump more, OPEC delegates said.

Exempting Russia from its oil-production targets could potentially pave the way for Saudi Arabia, the United Arab Emirates and other producers in the Organization of the Petroleum Exporting Countries to pump significantly more crude, something that the U.S. and European nations have pressed them to do as the invasion of Ukraine sent oil prices soaring above $100 a barrel.

Russia, one of the world’s three largest oil producers, agreed with OPEC and nine non-OPEC nations last year to pump more incrementally more crude each month, but its output is now expected to fall by about 8% this year. It couldn’t be determined whether Russia would agree to an exemption from the deal’s production targets.

As the news broke, oil fell from about $117.50 per barrel to about $114 and then rebounded to about $115. My guess, however, is that OPEC will try to take steps to prevent oil prices from suddenly spiking higher but will not attempt to drive prices lower. This development bears watching closely.

Helima Croft retweeted her interview with CNBC:

Oil taking a leg lower this afternoon after reports that OPEC may suspend Russia from its oil production deal.

RBC's @CroftHelima gives us her take on the headline pic.twitter.com/r08XS5yh8v

— CNBC's Closing Bell (@CNBCClosingBell) May 31, 2022

After the initial headline shock from the Wall Street Journal, I expect oil prices to recover.

As stated, my forecasted range of $110 to $130 per barrel is based on the current environment continuing without any major shocks. If the economy worsens faster and more severely than expected or the war takes a sudden turn, then, of course, all bets are off.

Switching topics, I just finished reading a book (Amazon affiliate link) Oil Leaders: An Insider’s Account of Four Decades of Saudi Arabia and OPEC’s Global Energy Policy (Center on Global Energy Policy Series) by Ibrahim AlMuhanna. For those who believe that the oil markets are perfectly rationale and predictable, this book debunks that theory. AlMuhanna mentions that there are important players who can influence the oil markets:

In my opinion, six important players are able to influence market direction, one way or another:

1. International business media, particularly specialized energy publications. It is not only what is reported but also the way events are reported, such as the people who are quoted, the news headlines, and news alerts.
2. Oil experts and analysts, whether independent or part of a large organization. IHS Markit and PIRA Energy Group, for example, interpret events and information and predict the direction of the oil market and oil prices, which influences the futures market.
3. International energy organizations, especially the International Energy Agency (IEA) and OPEC. These information warehouses publish monthly reports about the international oil market that are widely quoted, and their estimates on supply and demand and commercial stocks influence the oil market and its behavior.
4. Hedge funds and commercial banks. These players take positions in the oil futures market (long and short), expecting high or low oil prices. Their positions are based on their own in-house information and analysis as well as information from public and private oil officials and experts.
5. Government officials from major oil-producing and oil-consuming countries. Whether speaking publicly or privately, what they say can, and does, have a strong influence on the direction of oil prices, especially when inside information or new policy trends are discussed.
6. Major oil companies (national or international), including oil trading companies. Most of these companies have extensive internal analyses but do not like to discuss the oil market publicly. They don’t want to be quoted, nor do they typically reveal their information, expectations, and position in the market. Nevertheless, when their information is leaked or given to a limited number of people in a confidential way, they can influence the market and its direction.¹

If you are interested in the oil markets, I recommend Oil Leaders.

This month’s update is nearly identical to that from last month in that I am unable to provide a forecast with any confidence.

China continues to battle COVID, Joint Comprehensive Plan of Action (JCPOA) negotiations still are unresolved, the market believes that the Fed will increase rates aggressively, Europe is considering sanctioning Russian oil, and the war in Ukraine continues to rage. These are just some of the key factors affecting oil prices. I find it impossible to provide a reasonable forecast range for the next month. As I stated last month, if I were to supply a range, it would be absurdly wide, which would render it useless. My expectation is that oil prices will continue to stay volatile and at elevated levels.

For those of you wanting to watch how the market perceives future rate increases, the CME Group provides a useful FedWatch Tool.

Europe has been wrestling with sanctioning Russian oil. It seems that progress is being made as evidenced by the April 28 Wall Street Journal article “Germany Drops Opposition to Embargo on Russian Oil” (subscription required).

BERLIN—Germany is now ready to stop buying Russian oil, clearing the way for a European Union ban on crude imports from Russia, government officials said.

Berlin had been one of the main opponents of sanctioning the EU’s oil-and-gas trade with Moscow.

However on Wednesday, German representatives to EU institutions lifted the country’s objection to a full Russian oil embargo provided Berlin was given sufficient time to secure alternative supplies, two officials said.

John Kemp wrote the Reuters article “Oil prices paralysed between Russia sanctions and China lockdowns: Kemp” where he stated:

The combined net long position of 553 million barrels is in only the 39th percentile for all weeks since 2013 while the ratio of long to short positions at 4.59:1 is somewhat higher in the 59th percentile.

Fund managers remain moderately bullish about the outlook for prices but extreme volatility has made it risky and expensive to maintain existing positions or initiate new ones.

Reflecting higher margin calls, the total number of open futures positions for all categories of trader is the lowest for seven years, although it has stabilised in the last fortnight after falling sharply since mid-February.

His statements that the number of open contracts is extremely low implies that oil prices may whip around on lower volumes than are typical.

As stated, I believe oil prices will stay volatile at elevated levels. If pressed further, I am inclined to think West Texas Oil prices will climb, in the months ahead, above the current price of about $105 per barrel.

As the war in Ukraine continues to rage and the Joint Comprehensive Plan of Action (JCPOA) negotiations still are unresolved, among other critical factors, oil prices sometimes swing more than ten dollars per barrel on an intraday basis, making it impossible to provide any meaningful oil price range forecast for April. If I were to supply a range, it would be absurdly wide, which would render it useless. My expectation is that oil prices will continue to stay volatile and at elevated levels.

The war in Ukraine is devastating. All wars are horrific, of course. This war is so senseless and vicious, with women, children, the elderly, and medical personnel often being targeted. I am at a loss for words as to how I truly feel.

Like most people, I have been following Russia’s war against Ukraine. I would like to share some quick thoughts on this subject.

Arnold Schwarzenegger produced an excellent video sharing his views. Recently I have been reading a lot about negotiations and communication. Although I am certainly no expert in those fields, in my opinion, Arnold expertly delivered his message. He showed empathy for Russian people and their situation. He used past events in his personal life to show that he could relate to them. And while relating to them, he delivered the cold, hard facts about the war. His content and delivery were nothing short of masterful.

Many Russians use the Telegram app for communicating with others. Arnold Schwarzenegger has a channel in Telegram, and his video is available on that channel. See the links below:

• Arnold Schwarznegger’s video on his Telegram channel
• Arnold Schwarznegger’s video on Twitter (Russians cannot access Twitter)
• Arnold Schwarznegger’s video on YouTube (Russians cannot access YouTube)

The Financial Times in London, UK provides free access to the “War in Ukraine.”

• War in Ukraine

The New York Times has a channel on Telegram:

• New York Times Telegram channel

The channel provides key highlights of the articles from the New York Times with links to the articles. Even though others may not have subscriptions, they can still obtain key information of the latest developments.

If you have Russian friends or contacts, please share the above links.

In the past, I have helped a few dozen people with their university-entrance letters. Most of those students were from Eastern Europe, so I got to know several Russians. Even now many years later, I remain in regular contact with one former student who lives in Moscow. And well over a decade ago, I helped a Russian from eastern Russia with a Microsoft Excel problem. He and I have maintained regular contact over the years. Both of these two people are kind, polite, and generous. And neither supported the war. So, please, do not assume that all Russians support the war.

I use Telegram to share news and exchange views with them.

One of my dormant hobbies—that is, I have not been active in recent times—is photography. I got to know to an outstanding photographer in Kharkiv, Ukraine by the name of Alexandra Bolotina. She has won photography awards in the US. We communicate occasionally; she is one of the most wonderful and most optimistic people I have ever met. She is truly an incredible person. Because she lives in a city that is close to the Russian border and has a large proportion of its population that is Russian speaking, I expected minimal damage. I could not have been more wrong.

Here are some helpful links:

• Alexandra Bolatina in Facebook
• Alexandra Bolatina in Flickr
• Alexandra Bolatina in Instagram
• A Telegram channel dedicated to Kharkiv

Knowing how a specific person’s life has changed makes the war more personal to me. So that is why I shared a bit about her.

When you visit KharkivLife in Telegram, you will note that the language is Russian or Ukrainian. On my iPhone, I can select the Russian text and then choose to translate it to English. If is Ukrainian, then I need to copy and paste the text into my Microsoft Translator app. Both Russian and Ukrainian are used on Telegram. On my PC, I can copy the Cyrillic text, and then choose Google Translate or Microsoft Bing translator. Google allows for more text in one pass.

Here is the latest translated message that I saw:

Friends, we want to explain to you how the air alarm works.

• How fast do radar units receive an alarm? And how much time do we have to hide?

A few minutes or maybe even less minutes pass between the moment of fixing the aircraft/rocket and launching the siren. In fact, this is one phone call by special communication. After that, the siren in the right regions is included by local authorities.

The alarm indicates that enemy aircraft is either approaching a certain region, which can drop bombs or missiles, or it has already been fired with a missile.

• How are the cities in which the siren is included defined?

The air force records the route of the missile – approximately its course from point A to point B. Kharkiv has flown by – they turn it off, it flies further. And so step by step, this warning system operates throughout the country so that people at least have time to hide in shelter.

It is impossible to identify all threats.

However, the “oppressive majority” of our air Defence systems still see. ️The “air alarm” notification means that an enemy plane is flying, &dlquo;missile strike” means a flying missile. Most air alarms inform us exactly about the arrival of enemy aircraft. However, it should be taken into account that a cruise missile can also fly out of the plane.

It is necessary to hide in any case.

Or count on God.

Share this with your friends and subscribe to our channel.

One day, people are leading perfectly normal lives. And the next day, people are concerned about missiles launched toward them. What a cruel and unforgiving world some of us live in.

Wrapping up, here is what I would like you to take away from this post:

• If you have Russian friends or contacts, please share Arnold’s video, and Financial Times and New York Times links
• If interested, please see Alexandra’s photography
• If appropriate, share Alexandra’s links and the Kharkiv Telegram link
• Do whatever you can—even if you believe it is something small—to help foster peace and understanding

Thank you for your help and attention.

I normally provide an oil price forecast with a ten-dollar range indicating where I expect West Texas Intermediate prices to be in the upcoming month. For this month’s oil update, I am suspending my forecast.

A tweet of Kira Rudik, Ukrainian MP, holding a Kalashnikov rifle in self-defense.

The US Iran negotiations, known as the Joint Comprehensive Plan of Action (JCPOA) are reaching a critical point where a decision may be taken soon. I am not sure, though, if the current conflict in Ukraine has any bearing on these negotiations.

The Russia, Ukraine, NATO, and US conflict in Ukraine is horrific. I am unable to judge how this conflict will manifest itself in terms oil prices over the next month. There are simply too many moving parts. All I can say is that I expect oil prices to remain elevated—which is obvious to most everyone.

Because that I am Canadian with a Ukrainian last name, it should be easy to guess where I stand on the conflict. I want Ukraine to be a free and democratic country.

One of the challenges of writing about current events is that I expose my lack of historic and current knowledge. While I have read some history concerning Russia and Ukraine, I am far from an expert. I tend to follow current developments quite closely by reading several online sources and using Twitter. The reports and images are heart wrenching. When reading others’ thoughts and opinions, I check to see if I support their general views and logic. Two of Thomas L. Friedman’s latest op-eds in the New York Times resonated with me: “This Is Putin’s War. But America and NATO Aren’t Innocent Bystanders.” and “We Have Never Been Here Before.” Both op-eds require a subscription, though I believe that if you register with your email, you can read a limited numbers of articles without a subscription.

In the first op-ed, Friedman says that America and NATO all share some portion of the blame. And in the second, this conflict will be covered in social media and will affect the way we see war.

Some in the West might be inclined to demonize Russian people. That is a mistake. Like the citizens of any country, the population is not homogeneous. The Russians that I correspond with are kind, gracious, and wonderful people. They abhor war just as much as I do. So when I see war causalities—from either side—I mourn for the families that have their lost loved ones.

Seeing Ukrainians having to take up arms to defend themselves and their country breaks my heart. I have included a tweet from Kira Rudik, a member of parliament in Ukraine, which shows a picture of her holding a Kalashnikov rifle to defend herself and her country. Middle-aged people having to take up arms in self-defense in 2022 is abhorrent. Yet here we are.

No one knows how or when this conflict will get resolved. Because this is only the fifth day of the conflict, there are likely to be a few changes in shifts of momentum.

Like so many, I am upset and disappointed by these developments. I hope that because the world has become unified against this war, it gets resolved quickly.

Once there is more semblance of normalcy, I will go back to providing my forecasts.

A month ago, I forecasted West Texas Intermediate (WTI) to range between $72.50 and $82.50 per barrel for January. WTI has exceeded the upper end of my range for a substantial part of January. So for February, I am increasing my forecast by ten dollars per barrel to range between $82.50 to $92.50 per barrel.

Oil inventories remain tight and OPEC+ has not been keeping up with its pledges of 400 thousand barrel per day increases every month. As the northern hemisphere swings toward spring and summer, I expect even more pressure on oil.

As mentioned last month, Omicron is still an issue but appears to be a fading issue, and it is not likely a significant factor in looking at oil prices for next month. The Ukraine situation is a significant factor, though. I suspect that some portion of increased oil prices is the result of increased geopolitical tensions. If tensions escalate further, I expect oil prices to either remain stable or go higher. And if there is an invasion of Ukraine, I expect oil prices to rise significantly higher, perhaps to $100 per barrel. Of course, I hope an invasion does not happen. Aside from direct human suffering, there are more than enough domestic and global challenges that need to be addressed by all of us without having more divisions and distrust.

On the flip side, Iran negotiations are heating up. Should the US and Iran reach an agreement allowing Iran to export its oil, that would negatively affect oil prices, at least in the short term. Many suspect that all along Iran has been exporting significant amounts of oil to China. It is difficult to predict how much additional Iranian oil would be exported, how much the additional volumes would affect oil prices, and for how long.

In last month’s post, I mentioned that all negotiations are fraught with high degrees of uncertainty. Although many pundits opine with great certainty, I am not one of them. I do not have sufficient historical and detailed knowledge of the issues. Although I have my own personal thoughts and opinions, even I do not place much weight on them and am willing to radically revise my thoughts and opinions in a heartbeat.

I am surprised by the market turbulence apparently caused by the upcoming Fed rate increases. While I expected some movement, I thought the market would absorb the news with less volatility.

My forecasted range of $82.50 to $92.50 per barrel is premised on maintaining the status quo. If the Iranian negotiations are fruitful or Ukraine is invaded or a political compromise is reached, then my forecasted range is no longer applicable. Like everyone else, I am watching and reading as much as possible.

I recommend Steven Pinker’s book (Amazon affiliate link) Rationality: What It Is, Why It Seems Scarce, Why It Matters and give it a five-star rating.

I am going to create a fictional medical situation and ask you to estimate the odds of a person being truly sick.

Let us assume for a moment that there is a new disease where 0.5 percent of the population is afflicted with the disease. If a random person not exhibiting any symptoms tested positive using a blood test, what are the odds that that person is truly sick knowing that the blood test has the following attributes:

• 98 percent of the sick people being identified as sick (true positive reading)
• 2 percent of the sick are falsely identified as okay (false negative reading)
• 95 percent of the healthy people identified as healthy (true negative reading)
• 5 percent of the healthy people being identified as sick (false positive reading)

Remember, this test is 98 percent accurate in identifying those that are sick as being sick. The answer of how many are truly sick may surprise you: it is about 9 percent.

To determine the 9 percent answer, we need to calculate the true positive readings and the total number of positive readings, which is false positive plus true positive readings.

For illustrative purposes, let us assume a total sample population of a million people.

False positive readings are calculated as follows: total sample population times percent healthy times false positive readings or 1,000,000 times 0.995 times 0.05 = 49,750 people.

Similarly, true positive readings are calculated as follows: total sample population times percent sick times true positive reading or 1,000,000 times 0.005 times 0.98 = 4,900 people.

Total positive reading = 4,900 + 49,750 = 54,650 readings.

Then, true positive readings are divided by total positive readings or 4,900 / 54,650 to get about 9 percent.

Figure 1: Probability Tree

Please see figure 1. To enlarge the figure, click on it.

If this Bayesian theory example piqued your interest, then Rationality will be an interesting book for you to read. It discusses Bayesian theory and other similar statistical topics.

At the end of the book, Steven Pinker tells us why rationality matters. In short, if we want to progress as a society, we need to make rational choices.

I have always enjoyed these types of topics and therefore enjoyed this book and recommend it to those of you who enjoy similar topics.

As an aside, on his blog, David Epstein wrote an excellent article “Here’s How to Understand What a ‘95% Accurate’ Test Is Actually Telling You.” There, he references two good sources: one, the New York Times article “When They Warn of Rare Disorders, These Prenatal Tests Are Usually Wrong”; and two, JAMA Internal Medicine article “Medicine’s Uncomfortable Relationship With Math: Calculating Positive Predictive Value.” What is surprising is that the medical field itself has challenges with understanding Bayesian theory.

Books written about our brains tend to be complex and hard to understand. The Molecule of More: How a Single Chemical in Your Brain Drives Love, Sex, and Creativity–and Will Determine the Fate of the Human Race is different. It is easy to understand, entertaining, and informative. Those two qualities make this book (Amazon affiliate link) an outstanding read.

The main focus of the book is on one of the brain’s chemicals: dopamine.

Dopamine is a chemical that our brain uses when we want more of something now or focus more on abstract goals, needs, wants, or desires in the future.

As soon as we want something, our dopamine brain circuit kicks in and starts pumping dopamine, a feel-good drug. Dopamine remains as long as we are in pursuit of that something, but once we have obtained our goal, dopamine drops off and we need find something new to pursue to keep that dopamine high. If we are fortunate, though, our brains transition from dopamine to the Here and Now molecules.

Dopamine is one of the instigators of love, the source of the spark that sets off all that follows. But for love to continue beyond that stage, the nature of the love relationship has to change because the chemical symphony behind it changes. Dopamine isn’t the pleasure molecule, after all. It’s the anticipation molecule. To enjoy the things we have, as opposed to the things that are only possible, our brains must transition from future-oriented dopamine to present-oriented chemicals, a collection of neurotransmitters we call the Here and Now molecules, or the H&Ns. Most people have heard of the H&Ns. They include serotonin, oxytocin, endorphins (your brain’s version of morphine), and a class of chemicals called endocannabinoids (your brain’s version of marijuana). As opposed to the pleasure of anticipation via dopamine, these chemicals give us pleasure from sensation and emotion. In fact, one of the endocannabinoid molecules is called anandamide, named after a Sanskrit word that means joy, bliss, and delight.

According to anthropologist Helen Fisher, early or “passionate” love lasts only twelve to eighteen months. After that, for a couple to remain attached to one another, they need to develop a different sort of love called companionate love. Companionate love is mediated by the H&Ns because it involves experiences that are happening right here, right now—you’re with the one you love, so enjoy it.¹

Addictions, such as alcohol and drugs, trigger a dopamine release. The faster dopamine release, the more addictive the drug. Different drugs, of course, have different strengths and absorption rates. The addiction is caused by a chemical cultivation of desire or wanting. Whether this wanting is good or bad is irrelevant. And addiction should not be viewed through a moral lens of weak character or lack of willpower. Instead, it is a chemical addiction that is difficult from which to break.

Dopamine can make people act in strange ways. For example, although dopamine causes people to want more of everything, including power and domination, people can put aside their immediate desires for longer-range goals. By being more pleasant, people can often get more cooperation and work from others over the longer term.

Creative and mental illness often require abstract ideas, needs, wants, or goals. Dopamine figures prominently in both. And not surprising, mental illness afflicts a high percent of creative people compared to the general population. Various medications for mental illness seek to control the way dopamine works within the brain.

Scientists and artists have more in common than many believe.

The fine arts and the hard sciences have more in common than most people believe, because both are driven by dopamine. The poet composing lines about a hopeless lover is not so different from the physicist scribbling formulas about excited electrons. They both require the ability to look beyond the world of the senses into a deeper, more profound world of abstract ideas. Elite societies of scientists are filled with artistic souls. Members of the U.S. National Academy of Sciences are one and a half times more likely to have an artistic hobby compared to the rest of us. Members of the U.K. Royal Society are about twice as likely, and Nobel Prize winners are almost three times as likely. The better you are at managing the most complex, abstract ideas, the more likely you are to be an artist.²

I found the discussion on politics interesting and complex, but I will let you, my kind reader, find out for yourself.

Not surprisingly, dopamine is also helpful for adventurers because they are not satisfied with the status quo of their current environment. The authors discuss how people migrated from Africa to across the globe and what role dopamine played.

In the last chapter, we learn that to be happy, people need to focus on the here and now, not the future. Therefore, to lead a happier life, we need to temper our insatiable hunger for more and learn to appreciate what we have now. In reality, we need both the drive and ambition that comes from dopamine to make progress, and we need to enjoy and appreciate what we have accomplished.

To reiterate, I thoroughly enjoyed this book and highly recommend it.