A plunge in oil imports pushed the trade deficit in November to the lowest level in four years,

A plunge in oil imports pushed the trade deficit in November to the lowest level in four years, showing the U.S. economy is becoming more energy independent.
The gap narrowed 12.9 percent to $34.3 billion, smaller than projected by any economist surveyed by Bloomberg and the least since October 2009, figures from the Commerce Department showed today in Washington. Petroleum imports were the weakest in three years as advances in domestic extraction put the U.S. on track to become the world’s largest oil producer by 2015.
The fuel-driven drop in purchases from abroad overshadowed record demand for foreign autos, parts and capital goods that indicate spending by American consumers and businesses is strengthening. Exports also were the strongest ever as improving economies in Europe and Asia benefit companies like Boeing Co. (BA), contributing to a pickup in manufacturing.
“The trend toward more domestic fuel production is ongoing and it’s only going to get better,” said Chris Low, chief economist of FTN Financial in New York, who projected the trade gap would narrow. “Energy is the big thing, but there are other trends here.”
“The fact that the European recession is over is one of the most important things for U.S. trade and for U.S. manufacturing this year,” said Low.
Stocks rose, snapping a three-day retreat, as investors awaited this week’s corporate earnings reports. The Standard & Poor’s 500 Index climbed 0.6 percent to 1,838.36 at 1 p.m. in New York.
German Economy
Elsewhere today, German unemployment fell in December for the first time in five months, signaling increased confidence by the nation’s companies. The number of people out of work in Europe’s largest economy decreased by a seasonally adjusted 15,000 to 2.965 million, the Nuremberg-based Federal Labor Agency said.
The median forecast in a Bloomberg survey of 68 economists projected the U.S. trade deficit would come in at $40 billion. Estimates ranged from $38 billion to $42.8 billion. The Commerce Department revised the October gap down to $39.3 billion from an initially reported $40.6 billion.
Imports dropped 1.4 percent to $229.1 billion in November, according to the Commerce Department. Purchases of crude oil tumbled to $28.5 billion, the lowest since November 2010, reflecting both lower prices and volume.
The nation’s petroleum deficit shrank to $15.2 billion in November, the lowest since May 2009. Increasing domestic output pushed exports of petroleum products to a record.
Oil Production
Those trends continued last month. Domestic crude-oil production increased to 8.12 million barrels a day in the last full week of December, the most in 25 years, according to the U.S. Energy Information Administration. Output surpassed imports in October for the first time since 1995.
Advances in extraction techniques such as hydraulic fracking and horizontal drilling have led to increased crude-oil production, and the Paris-based International Energy Agency projects the U.S. will surpass Russia and Saudi Arabia as the world’s largest producer by 2015.
Manufacturing companies, particularly chemical makers, also stand to win as the shale bonanza keeps natural gas cheaper in the U.S. than in Asia or Europe. The chemical industry is one of the top consumers of natural gas, using it both as a fuel and feedstock to produce the compounds it sells.
Celanese Corp. (CE), a chemical maker, and Axiall Corp. (AXLL), North America’s largest producer of vinyl building products, are among those benefiting. Dallas-based Celanese received final approval this month to build a Texas methanol plant that will supply the company with two-thirds of its domestic needs of the chemical.
Chemical Makers
Atlanta-based Axiall is considering building a $3 billion ethylene plant in Louisiana with a partner to take advantage of an abundance of cheap shale gas.
Total U.S. exports increased 0.9 percent to $194.9 billion in November, today’s report showed, reflecting a $390 million gain in civilian aircraft and a $264 million advance in chemical sales. American companies’ sales to customers in China were the strongest ever.
Dennis Muilenburg, president and chief operating officer of Chicago-based Boeing, is among executives who are optimistic about business abroad. The planemaker collects about 30 percent of its revenue outside the U.S., which Muilenburg predicts will be a stable share “for the long term.”
“It’s not just a wave of exports, it’s something we can sustain for the long run,” Muilenburg said at a Dec. 4 conference.
Improving Growth
The figures used to calculate gross domestic product, which eliminate the influence of prices, showed the trade deficit narrowed to $44.6 billion in November, a five-month low. The fourth-quarter average so far is smaller than in the previous three months, indicating trade boosted gross domestic product.
Economists at Deutsche Bank Securities Inc. and Barclays Plc in New York were among those raising fourth-quarter growth forecasts by at least a percentage point today, reflecting the improvement in trade and earlier data showing gains in consumer spending and business investment.
The trade data “adds to an already upbeat growth picture,” said Michael Gapen, a senior U.S. economist at Barclays in New York, after the bank’s economists revised their GDP forecast for last quarter to 3 percent from 1.5 percent. “2014 is shaping up to be a better year globally.”
To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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Daniel Yergin: Why OPEC No Longer Calls the Shots

  • The Wall Street Journal
  • OPINION
  • October 14, 2013, 7:26 p.m. ET

Daniel Yergin: Why OPEC No Longer Calls the Shots

The oil embargo 40 years ago spurred an energy revolution. World production is 50% higher today than in 1973.

  • DANIEL YERGIN

Forty years ago, on Oct. 17, 1973, the world experienced its first “oil shock” as Arab exporters declared an embargo on shipments to Western countries. The OPEC embargo was prompted by America’s military support for Israel, which was repelling a coordinated surprise attack by Arab countries that had begun on Oct. 6, the sacred Jewish holiday of Yom Kippur.

With prices quadrupling in the next few months, the oil crisis set off an upheaval in global politics and the world economy. It also challenged America’s position in the world, polarized its politics at home and shook the country’s confidence.

Yet the crisis meant even more because it was the birth of the modern era of energy. Although the OPEC embargo seemed to provide proof that the world was running short of oil resources, the move by Arab exporters did the opposite: It provided massive incentive to develop new oil fields outside of the Middle East—what became known as “non-OPEC,” led by drilling in the North Sea and Alaska.

The Prudhoe Bay oil field was discovered in Alaska five years before the crisis. Yet opposition by environmentalists had prevented approval for a pipeline to bring the oil down from the North Slope—very much a “prequel” to the current battle over the Keystone XL pipeline. Only in the immediate aftermath of the embargo did a shaken Congress approve a pipeline that eventually added at its peak as much as two million barrels a day to the domestic supply.

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© Corbis

A Connecticut filling station in 1974 amid the oil embargo.

The push to find alternatives to oil boosted nuclear power and coal as secure domestic sources of electric power. The 1973 crisis spawned the modern wind and solar industries, too. By 1975, 5,000 people were flooding into Washington, D.C., for a conference on solar energy, which had been until then only “a subject for eco-freaks,” as one writer noted at the time.

That same year, Congress passed the first Corporate Average Fuel Economy standards, which required auto makers to double fuel efficiency—from 13.5 miles per gallon to 27 miles per gallon—ultimately saving about two millions barrels of oil per day. (The standards were raised in 2012 to 54.5 miles per gallon by 2025). France launched a “war on energy waste,” and Japan, short of resources and fearing that its economic miracle was at risk, began a drive for energy efficiency. Despite enormous growth in the U.S. economy since 1973, oil consumption today is up less than 7%.

The crisis also set the stage for the emergence of new importers that have growing weight in the global oil market. In 1973, most oil was consumed in the developed economies of North America, Western Europe and Japan—two thirds as late as 2000. But now oil consumption is flat or falling in those economies, and virtually all growth in demand is in developing economies, now better known as “emerging markets.” They represent half of world oil consumption today, and their share will continue to increase. Exporting countries will increasingly reorient themselves to those markets. Last month, China overtook the U.S. as the world’s largest net importer of oil.

A lasting lesson of the crisis years is the power of markets and their ability to adjust to disruptions, if government allows them to. The iconic images of the 1970s—gas lines and angry motorists—are trotted out whenever some new disruption happens. Yet those gas lines weren’t the result of markets. They were the largely self-inflicted result of government interference in markets with price controls and supply allocation. Today, the oil market is much more transparent owing to the development of futures markets.

The 1970s were also years of natural-gas shortages, which turned into a bitter political issue, particularly within the Democratic Party. Many at the time attributed these shortages to geology, but they too were the result of regulation and price controls. What solved the shortages wasn’t more controls but their elimination, which resulted in an oversupply that became known as the “gas bubble.” Today, abundant natural gas is the default fuel for new electricity generation. The lesson is that markets and price signals can work very efficiently, and surprisingly swiftly, even in crises, if they are allowed to.

There will be future energy disruptions because there is still much political risk around oil. In 2013, the Middle East is still in turmoil, but the alignments are different. In 1973, Iran was one of America’s strongest allies in the Middle East. Tehran didn’t participate in the embargo and pushed oil into the market. But since the 1979 Islamic revolution, Washington and Tehran have been adversaries. Meanwhile, Saudi Arabia, which was at the center of the 1973 embargo, is now America’s strongest Arab ally.

The real lesson of the shock of 1973 and the second oil shock set off by the overthrow of Iran’s shah in 1979 is that they provided incentives—and imperatives—to develop new resources. Today, total world oil production is 50% greater than in 1973. Exploration in the North Sea and Alaska was only the beginning. In the early 1990s, offshore production expanded farther out into the Gulf of Mexico, opening up deep water as a new oil frontier. In the late 1990s, Canadian oil sands embarked on an era of growth that today makes them a larger source of oil than Libya before its 2011 civil war.

Most recent is the development of “tight oil,” the spinoff from shale gas, which has increased U.S. oil output by more than 50% since 2008. This boom in domestic output increases energy supply, and combined with shale gas has a much wider economic impact in jobs, investment and household income. As these tight-oil supplies increase, and as the U.S. auto fleet becomes more efficient, oil imports have declined. Imports reached 60% of domestic consumption in 2005, but they are now down to 35%—the same level as in 1973.

As the U.S. imports less oil it also produces more to the benefit of energy security. There are several million barrels of oil now missing from the world oil market, owing to sanctions on Iranian oil, disappointments in Iraqi production, and disruptions to varying degrees in Libya, South Sudan, Nigeria and Yemen. The shortfall is being partly made up by Saudi Arabia, which is producing at its highest level.

But the growth in U.S. oil output has been crucial in compensating for the missing barrels. Without it, the world would be looking at higher oil prices, there would be talk of a possible new oil crisis, and no doubt Americans would once again start seeing images of those gas lines and angry motorists from 1973.

Mr. Yergin, vice chairman of IHS, is the author of “The Quest: Energy, Security, and the Remaking of the Modern World” (Penguin Press, 2012).

A version of this article appeared October 15, 2013, on page A19 in the U.S. edition of The Wall Street Journal, with the headline: Why OPEC No Longer Calls the Shots.

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BOOM IN NATURAL GAS PRODUCTION SENDS U.S. SHIPYARDS INTO OVERDRIVE

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AP

Boom In Natural Gas Production Sends U.S. Shipyards Into Overdrive

The Great American Energy Boom is having a major ripple effect on the shipbuilding industry, which thanks to a 1920s maritime law, is busier than it has been in decades.

Some ten supertankers are currently under construction at U.S. shipyards, with orders for another 15 in the pipeline. That may not seem like a huge number, but considering there are only about 75 such tankers plying American ports now, it represents a genuine boat-building boom.

“We haven’t seen something like this since the 1970s,” Matthew Paxton, president of the Shipbuilders Council of America said to FoxNews.com. “The movement of more oil has built up a real commercial shipbuilding renaissance.”

The renaissance comes despite an economy that continues to struggle. It’s because of a specific sector of the U.S. economy that is also booming: natural gas production. The fuel must be transported, even within the country, either by rail, pipeline or ship. And if it is by ship, the ship must be American-made and American-manned, according to the 1920s Merchant Marine Act, also known as the Jones Act.

Paxton said that it is projected that up to 3.3 million barrels will be shipped out daily from the Gulf Coast by 2020, destined for ports along the east and west coasts, causing huge demand for tanker ships.

“It could be higher as more and more tankers are built,” he said.

With record amounts of gas and oil being extracted from shale by the process of fracking, the U.S. has seen an energy boom in recent years that has proponents calling it the Saudi Arabia of natural gas. Much of the fuel is being exported, but most is staying here, being distributed around the nation for domestic use.

More U.S. oil is moving via truck, barge and train than at any point since 1981

COMMODITIES Updated August 26, 2013, 12:07 a.m. ET

Pipeline-Capacity Squeeze Reroutes Crude Oil

More U.S. oil is moving via truck, barge and train than at any point since 1981

By RUSSELL GOLD CONNECT

More crude oil is moving around the U.S. on trucks, barges and trains than at any point since the government began keeping records in 1981, as the energy industry devises ways to get around a pipeline-capacity shortage to take petroleum from new wells to refineries.

Getty Images

Oil container cars sit at a train depot outside Williston, N.D.

The improvised approach is creating opportunities for transportation companies even as it strains roads and regulators. And it is a precursor to what may be a larger change: the construction of more than $40 billion in oil pipelines now under way or planned for the next few years, according to energy adviser Wood Mackenzie.

“We are in effect re-plumbing the country,” says Curt Anastasio, chief executive of NuStar Energy LP, a pipeline company in San Antonio. Oil is “flowing in different directions and from new places.”

U.S. oil production has reached its highest level in two decades, while imports have fallen dramatically. A system built to import oil and deliver it to coastal refineries has become ill-equipped to handle rising production in Texas, North Dakota and Canada’s Alberta province.

“All of the pipes are pointed in the wrong direction,” says Harold York, an oil researcher at Wood Mackenzie. “We are turning the last 70 years of oil-industry history in North America on its head, and we are turning it on its head in the next 10 to 15 years.”

With oil prices persistently above $100 a barrel, companies drilling new wells don’t want to forgo revenue while they wait years for new pipelines. That leaves them with trucks, trains and barges to move an increasing amount of crude.

Oil delivered to refineries by trucks grew 38% from 2011 to 2012, according to the U.S. Energy Information Administration, while crude on barges grew 53% and rail deliveries quadrupled. Although alternatives are growing rapidly, pipelines and oceangoing tankers remain the primary method for delivering crude to refineries.

In the Eagle Ford, a large four-year-old South Texas oil field, production has grown to more than 500,000 barrels a day, from less than 1,000 in 2009, according to state statistics. Getting that torrent out of the sparsely populated region has required modifications to the oil-delivery system.

For example, last year NuStar reversed a 16-inch pipeline built to carry crude imported from Africa and Europe northward from the Port of Corpus Christi. Now, the pipeline flows south, taking delivery from hundreds of trucks that fill up at individual wells. Some of the 175,000 barrels a day moving through the pipe is loaded onto barges at Corpus Christi and towed toward refineries near Houston.

Earlier this year, Phillips 66 began putting some of this crude on ships for a 2,200-mile journey around Florida to its refinery in Linden, N.J.

The heavy trucks moving Eagle Ford crude are causing headaches for residents and local officials, ripping up roads and causing traffic tie-ups.

“These are rural roads built for 10 cars an hour, and now it’s 100 vehicles an hour, and 75 of them are 80,000-pound trucks,” says Tom Voelkel, president of Dupre Logistics LLC. The Lafayette, La., company started hauling crude in Eagle Ford in November 2011 and has more than 100 drivers full time in the region.

The Texas Legislature appropriated $450 million this year to repair and improve roads in oil-producing counties. “It doesn’t even begin to reach where it needs to reach,” says Daryl Fowler, the chief elected county official in Cuero, Texas, about a hundred miles southeast of San Antonio.

“We’ve seen a fourfold increase in congestion around here,” he says. “The roads are crumbling.”

In July, the Texas transportation department decided to convert 83 miles of state road in six oil-boom counties from pavement to gravel, to reduce repair costs and slow traffic.

Trucks filled with Eagle Ford crude are also heading 100 miles west to a barge canal. The first barge of crude departed in September 2011, heading south toward the Gulf of Mexico and refineries near Houston. Now the canal moves 1.6 million barrels a month, says Jennifer Stastny, executive director of the Port of Victoria.

“It’s like putting your 5-year-old to bed one night and he wakes up the next morning as a 16-year-old, with the appetite and demands of a 16-year-old,” she says.

In North Dakota, trains move 69% of the state’s 800,000 barrels a day of crude, according to state figures. Energy companies say they value rail’s ability to deliver crude to the highest-paying markets.

But the deadly runaway crude train crash in Canada’s Quebec province in July, which incinerated a small town and killed at least 47 people, highlighted the risks of the mile-long crude trains crisscrossing the country. The U.S. government is imposing new regulations on oil shipments by rail.

Some state regulators wonder if their local efforts leave them prepared for a train accident, in part because federal railroad rules pre-empt state and local control over trains.

In Washington state, “we can’t say [to train operators] you have to have oil-spill contingency plans in order to operate,” says Curt Hart, a spokesman for the state’s Department of Ecology. “We do that for oil tankers, barges, large commercial vessels and refineries.”

Home to five refineries, the state levies a per-barrel tax on crude delivered by tankers and barges, which pays for spill-response officials and inspectors. The tax doesn’t apply to rail shipments.

The American Association of Railroads says it is prepared for growing crude shipments because it has long carried hazardous cargoes. In 2008, major U.S. railroads carried 9,500 carloads of crude, the association says, and are on pace this year to carry 389,000.

Most industry analysts believe that while crude on trains will last, truck and barge traffic will decline once new pipelines come into service.

Environmental groups have criticized some pipeline projects, including the Keystone XL, meant to move Canadian oil to Gulf Coast refineries. The federal government is still studying the Keystone pipeline and has yet to issue needed permits.

Steve Kean, president and chief operating officer of Kinder Morgan Inc., one of several interrelated companies that own or operate 82,000 miles of North American pipeline, says government agencies thoroughly vet new projects.

Falling imports, infrastructure investments and increased manufacturing are just some of the benefits of newly abundant energy supplies, he says. “This has got to be one of the best things that has happened in our economy in the past 10 years. It is better than the iPad.”

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In bustling Houston, it’s a case of ‘Build, baby, build!’

In bustling Houston, it’s a case of ‘Build, baby, build!’

9:11am EDT

By Anna Driver and Ilaina Jonas

HOUSTON/NEW YORK (Reuters) – With Texas one of the few bright spots in the U.S. economy, the skyline of swaggering Houston is where the action is as builders and global oil companies, from Phillips 66 to Exxon Mobil Corp, look past previous busts and spend billions on gleaming new buildings.

The U.S. shale oil and gas revolution – which has already changed industries from railroads to pipelines and refineries – is helping drive the voracious appetite for office space needed for the expanding workforce in the world’s energy capital.

Demand is so hot that Houston is one of the few places where banks – including Wells Fargo & Co, which is seen as one of the more conservative big banks – will loan money for a new building without demanding developers first have a tenant.

“Houston is booming and bar none the strongest market in the United States of America,” said Joseph Sitt, chief executive of Thor Equities, which has two projects underway in Houston.

There are some 56 office buildings totaling at least 11 million square feet under construction in and around Houston, according to real estate services firm CBRE Group Inc. That is equivalent to 190 football fields.

In the forested suburbs, Exxon has what it calls “one of the largest commercial construction projects underway in North America.” The nearly 400-acre campus with 20 buildings will have enough room for 10,000 employees.

With crude now above $100 a barrel, money is flowing freely. And while the shale oil and gas transformation means North America may be energy independent by the end of this decade, economists are wary when people say this boom will be different. They counsel caution.

“The Texas oil and gas industry is not known for long periods of stability,” Karr Ingham, economist for the Texas Alliance of Energy Producers. “Nobody wants what happened (in past busts) to happen again.”

To be sure, the amount of space being built is still only a fraction of the 88.9 million square feet developers constructed in Houston from 1980 through 1986, a flurry that more than doubled the city’s office market, according to real estate research firm Reis Inc.

The Texas economy grew 4.8 percent last year, the fastest pace among the big U.S. states. New workers are pouring into Houston, which needs new offices for the 100,000 jobs it added last year. Houston is on track to add another 80,000 this year.

But over-exuberance about real estate and oil have afflicted Houston before. In the early 1980s developers built a 71-story green glass tower with a footprint shaped like a dollar sign.

It took nearly two decades to recover from Houston’s big crash in the 1980s, which was brought on by a collapse in oil prices. Vacancy rates soared to near 30 percent in 1983 from 9.8 percent two years prior, according to Reis.

The current building cycle is in large part propelled by burgeoning domestic production of oil and natural gas unlocked from shale formations through hydraulic fracturing and horizontal drilling.

“If you are investing in Houston, you’re a believer in the energy sector long term, which we are,” said Russell Cooper, managing director of capital transactions at Shorenstein Properties LLC in San Francisco.

The firm in January bought a building of more than one million square feet in downtown Houston from Exxon for $48 million. It plans to put a new glass skin on the building and may connect it to the air-conditioned tunnel system downtown, where office workers eat and shop to escape torrential rains and steamy heat.

Exxon has put two other buildings in Houston and one in Virginia up for sale, ahead of the move to its new campus.

ENERGY CORRIDOR

Tower cranes dot the landscape of Houston’s so-called energy corridor, about 15 miles from downtown. The area, located on the western edge of the city, is experiencing rapid growth as companies build and expand. There, refining company Phillips 66 is constructing a 14-acre campus with over a million square feet for its 1,800 employees.

Firms are loading their blueprints with plans for everything from basketball courts to childcare centers and fancy coffee shops to attract hard-to-find energy experts.

Near the Exxon campus, an entire master-planned community called Springwoods Village with room for up to 5,000 houses and apartments is going up to accommodate new workers.

While others construct facilities for employees, some companies are building space to push the frontiers of oil technology.

BP Plc is spending more than $100 million over the next five years to build a new three-story building that will house the huge supercomputing complex used to speed up BP’s search for oil and gas around the world.

“It made more sense to create a new home,” said Keith Gray, manager of BP’s High Performance Computing unit. “It became clear that a freestanding building was needed to address growth needs.”

Other oil and gas companies with buildings under construction or in preliminary stages in Houston include BHP Billiton Petroleum, Anadarko Petroleum Corp, Royal Dutch Shell and Chevron Corp, which plans a 50-story tower downtown.

One building which started on spec – meaning banks loan money for construction even if a tenant isn’t lined up – is the 550,000-square-foot Energy Center Three in west Houston.

Principal Real Estate Investors, part of Principal Financial Group, and developer Trammell Crow Co started the building with a loan of roughly $100 million from a Wells Fargo-led syndicate.

Within four months, oil company ConocoPhillips signed a lease for the entire building and half of Energy Center Four, which is not yet under construction, said Aaron Thielhorn, managing director of Trammell Crow’s Houston business unit.

Brian Stoffers, president of CBRE Capital Markets, said spec building in Houston in many ways makes it an outlier.

“The dynamics of the Houston market are so robust right now that it’s the exception to the economic rule around the rest of the country,” he said.

Of the buildings under construction, 29 will be rentals that will not be owner-occupied. Of those, 13 broke ground without signed leases but six of those have since found tenants.

Vacancy rates in the most expensive, modern office buildings in Houston are tumbling. Second-quarter vacancy slid to 6.9 percent from 12 percent in the same period two years ago, according to CBRE. The broader office vacancy rate is 14.2 percent versus a national average of 17 percent.

DANGER AHEAD?

While access to shale deposits has diminished worries about supplies, much of the new demand for crude oil in recent years has been led by developing nations such as China and India.

Big slowdowns in those developing economies could hit the price of crude and cool enthusiasm for building in Houston.

“If China and India have hit a plateau, then I think we have to ask where are the drivers for oil demand in the future,” said the University of Houston’s Robert Gilmer.

Chinese growth slowed to 7.5 percent in the second quarter – below the 8.9 percent average of the last six years.

Apart from shale, crude oil prices generally need to stay above $65 per barrel to produce from the deepwater Gulf of Mexico or the oilsands in Canada for companies to make money.

Another risk is overbuilding. Houston, a sprawling 8,778-square-mile metropolis, has no zoning restrictions, a fact that has some investors including New York-based GreenOak Real Estate Advisors, looking elsewhere to buy.

Owners in areas where building is constrained can reap big rewards when demand for space rises, fueling rent spikes of sometimes 20 percent. That rarely happens in Houston, where developers can easily build.

“When you’re dealing with a market like Houston, there’s nothing to hold developers back,” Ryan Severino, Reis senior economist said. “You can literally can go next door and put up a building.”

(Additional reporting by Kristen Hays in Houston; Editing by Terry Wade and Claudia Parsons)