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U.S. gas prices have surged to the highest level in real terms since the financial crisis in 2008 as strong demand for LNG from buyers in Europe and Asia puts pressure on inventories. Front-month futures for gas delivered to Henry Hub in Louisiana are trading at almost $9 per million British thermal units, up from just over $3 at the same point last year and less than $3 in 2019.

Front-month futures have surged into a record backwardation of almost $4 above futures for delivery one-year from now, as traders anticipate inventories will remain under pressure through the rest of the year.

Working gas stocks in underground storage are 335 billion cubic feet or 18% below the pre-pandemic five-year seasonal average for 2015-2019.

Inventories have remained low despite a fairly mild winter, with population-weighted heating demand this winter in the Lower 48 states around 7% below the average.

Domestic gas production has recovered to its pre-pandemic peak, according to data from the U.S. Energy Information Administration. But exports especially in the form of LNG have risen sharply, which is keeping inventories low and putting upward pressure on prices.

In recent months, LNG exports have been equivalent to 10-12% of domestic dry gas production, up from around 4% in early 2019. Exports have become a big enough share of the market they have started to enforce a partial convergence with prices in Europe and Asia.

U.S. gas supplies have tightened as Europe and Asia scramble to buy LNG to refill their own depleted storage after last winter and amid fears about a disruption of gas supplies from Russia.

The rise in prices will enforce maximum fuel-switching among power generators from gas to coal to conserve fuel stocks this summer, with spot gas now uncompetitive against coal except for peak generation.

…click on the above link to read the rest of the article…

Buckle Up for a Crashing Economy and More Inflation

May 6, 2022

Buckle Up for a Crashing Economy and More Inflation

Jerome Powell began hinting that inflation might be a problem last August. In November, Powell retired the word “transitory.” But here we are in May and the Federal Reserve still hasn’t done anything substantive to address the inflation problem.

And now it may be too late. It’s probably time to buckle up for more inflation – and perhaps a crashing economy.

Powell and Company have been talking tough for months, but there hasn’t been a whole lot of action. In March, the central bank raised interest rates a paltry 25 basis points. At the May meeting, the FOMC followed up with a more aggressive 1/2% rate hike but took a 75 basis point rate hike off the table.

Meanwhile, the Fed didn’t even start tapering quantitative easing until January. In mid-April, the balance sheet was still expanding, hitting an all-time high of $8.97 trillion.

At the May FOMC meeting, the Fed unveiled its balance sheet reduction scheme. It was hardly impressive. If the Fed shrinks its balance sheet at the proposed rate, it will be back to pre-pandemic levels in about eight years.

The Fed has targeted a 2.5% interest rate by the end of the year. With GDP already going negative in Q1, it’s questionable that the Fed can get there without completely tanking the economy. There are already signs that the Fed has pricked the housing bubble.

And as Mises Institute senior editor Ryan McMaken pointed out in a recent article, the Fed really needs to push rates much higher than 3%.

One percent may seem high to some market observers of recent rate cycles, but we’re now in a high-inflation environment with price inflation above 8 percent. The Fed is going to have to do more than a mild hike here and there to make a dent in 8 percent CPI (Consumer Price Index) inflation…

…click on the above link to read the rest of the article…

U.S. East Coast Diesel Supply Is Running on Fumes

May 5, 2022

U.S. East Coast Diesel Supply Is Running on Fumes

Last week, East coast inventories of diesel plunged to the lowest seasonal level since government records started more than 30 years ago. The shortage caused a crisis in the diesel market, sending wholesale and retail diesel prices to an all-time high. Diesel is today more expensive in America that it was in 2008, when the price of crude oil surged to nearly $150 a barrel compared with little more than $100 currently.

Diesel is the workhorse of the global economy. It’s used everywhere to keep trucks, tractors, freight trains and factories moving. And its ubiquity means the increase in its price will exacerbate global inflationary pressures.From central bank interest rates to supermarket prices, a lot hinges on diesel. On Tuesday, average U.S. retail diesel prices posted the fifth-consecutive fresh daily record, surging above $5.3 per gallon, up nearly 75% from a year ago. The price spike is worse on the Eastern seaboard, where diesel retails now for more than $6 per gallon, nearly double 2021’s price.The oil tanks in New York harbor are nearly empty for reasons both global and local. Around the world, diesel is in short supply as demand has surged well above pre-Covid levels, spurred by a boom in freight…

…click on the above link to read the rest of the article…

SHTF! You HAVE TO HEAR What This TRUCKING INSIDER said to ME! PREP NOW!

May 4, 2022

SHTF! You HAVE TO HEAR What This TRUCKING INSIDER said to ME! PREP NOW!

Why every American should care that diesel prices are surging across the country

May 3, 2022

Why every American should care that diesel prices are surging across the country

A blue tractor-trailer travels on a highway as dollar bills are seen to the right to illustrate diesel prices. — The cost of diesel fuel impacts truckers and the entire economy. (Photo: JIm Allen/FreightWaves)

Gasoline prices are increasing almost daily, pinching the wallets and pocketbooks of nearly all Americans with cars. However, as bad as that news is, diesel prices are surging even more across the country. Today’s truckstop retail diesel prices hit a new record of $5.32/gallon. Since February 1st, national truckstop diesel prices have increased by $1.57/gallon. For an owner-operator whose truck gets 6.5 miles per gallon, this equates to a cost increase of $0.24 per mile.

A graph showing the price of diesel per gallon.

Diesel’s importance to our economy

To many Americans (including politicians), diesel prices are so removed from their version of reality that they often dismiss the importance of diesel to the U.S. and global economies. However, diesel is the fuel that drives the economy and leaves major industries vulnerable to cost shocks.

Without diesel fuel, the U.S. economy would collapse in a matter of days. Our supply chains would completely shrivel, almost overnight.

Trucks use it to haul our goods across the country. Of all Class 8 trucks (the big ones), 97% use diesel. No, Elon Musk is not going to save us here. When Tesla announced the Semi in 2017, Musk projected that over 100,000 would be produced by 2022. Today there are less than 20, mostly prototypes.

Trains also depend on diesel to transport products across the country. Almost every train in the country depends on diesel for energy.

An orange BNSF train hauls coal — *A BNSF train hauls coal. (Photo: Flickr/Aaron Hockley)*

Even a large portion of our electricity is indirectly powered by diesel. Over one-fifth (22%) of our electricity in the United States comes from coal. Diesel-powered trains transport coal to power plants across the nation.

Diesel is also critical to our imports and exports, because 80% of the ships that transport products via the ocean are powered by diesel.

…click on the above link to read the rest of the article…

The Gathering Stagflationary Storm

April 26, 2022

roubini163_STEFANI REYNOLDSAFP via Getty Images_gas prices

The Gathering Stagflationary Storm

While recent shocks have made the current inflationary surge and growth slowdown more acute, they are hardly the global economy’s only problems. Even without them, the medium-term outlook would be darkening, owing to a broad range of economic, political, environmental, and demographic trends.

NEW YORK – The new reality with which many advanced economies and emerging markets must reckon is higher inflation and slowing economic growth. And a big reason for the current bout of stagflation is a series of negative aggregate supply shocks that have curtailed production and increased costs.

This should come as no surprise. The COVID-19 pandemic forced many sectors to lock down, disrupted global supply chains, and produced an apparently persistent reduction in labor supply, especially in the United States. Then came Russia’s invasion of Ukraine, which has driven up the price of energy, industrial metals, food, and fertilizers. And now, China has ordered draconian COVID-19 lockdowns in major economic hubs such as Shanghai, causing additional supply-chain disruptions and transport bottlenecks.

But even without these important short-term factors, the medium-term outlook would be darkening. There are many reasons to worry that today’s stagflationary conditions will continue to characterize the global economy, producing higher inflation, lower growth, and possibly recessions in many economies.

For starters, since the global financial crisis, there has been a retreat from globalization and a return to various forms of protectionism. This reflects geopolitical factors and domestic political motivations in countries where large cohorts of the population feel “left behind.” Rising geopolitical tensions and the supply-chain trauma left by the pandemic are likely to lead to more reshoring of manufacturing from China and emerging markets to advanced economies – or at least near-shoring (or “friend-shoring”) to clusters of politically allied countries. Either way, production will be misallocated to higher-cost regions and countries.

…click on the above link to read the rest of the article…

Walking backward into the storm

April 26, 2022

Walking backward into the storm

Are we in a recession? It is an interesting question because nobody can know for sure. A recession is defined as two successive quarters of negative growth. Okay, but how do we know if, in the quarter we are in, the economy is shrinking? Again, we cannot know this. This is because the latest data we have is for February 2022… and it showed an unexpected fall in growth to just 0.1 percent. In the event that growth turned sufficiently negative in March 2022, then the first quarter of 2022 as a whole might have been negative. And in the event that this negative trend continued through April and on through May and June 2022, then we would indeed be in a recession… but we will only know for sure when the data is published in August.

It is on this kind of uncertainty that economic policy is set. On top of the slowdown in growth – which may have improved or worsened, but nobody knows yet – comes data for March showing a dramatic fall in retail spending, largely resulting from rising food and fuel prices. Is this because households and businesses can no longer afford to buy, or are they reining in their spending in anticipation of higher prices in future? Again, we do not know. Certainly, food and energy retailers have warned that prices will have to rise in future. At the same time, households and businesses face higher local and national taxes and utility bills. And so, falling sales is likely a combination of both prices that have already risen and the expectation of price rises to come.

Crucially though, the lens through which economic policy makers are viewing the economic clouds gathering on the horizon is a financial lens which looks back fondly on the sunlit uplands of the pre-2008 years as some kind of normal…

…click on the above link to read the rest of the article…

David Stockman on Inflationary Hell That’s About to Break Loose

April 21, 2022

David Stockman on Inflationary Hell That’s About to Break Loose

It is only a matter of time before Kiev surrenders to the Russians, with or without their clown-car president signing the armistice. But that deal will be so onerous from Washington’s perspective that it will not mark the end of the sanctions war, but will be an excuse for its actual intensification and indefinite prolongation.

When that becomes the reality, however, inflationary hell will break out all over the place. And the Fed’s decades-long experiment in egregious, inflationary money-pumping will splatter ignominiously all over the Eccles Building (Fed headquarters).

It now appears that commodities markets have been so drastically roiled by the action to date that Washington’s war on the global trading and payments system is now open-ended and can theoretically go on for years.

That’s because the Russian-loathing, Putin-demonizing Dems now in charge of policy in Washington cannot even see straight when it comes to the real issues of the conflict.

There is absolutely nothing wrong with partitioning Ukraine and Crimea, nor with Putin’s proposed new security arrangement that would have NATO move its missile bases to the pre-1999 status quo and the re-garrisoning of US and Western military forces to the old NATO territories.

But these plausible solutions are so far removed from the war fevers now raging on the Potomac that there is no chance of Washington embracing a negotiated solution to the Ukrainian war. It will actually take a historic GOP sweep in the 2024 elections to clear the decks of Putin/Russian demonization, and even that would not make a difference if the blood-thirsty neocons and military hawks retained control of the GOP.

Meanwhile, just like that, the price of oil recently hit $130 per barrel.

Here’s the thing.

Double-digit inflation is now guaranteed and it will be long-lasting.

…click on the above link to read the rest of the article…

This time really is different

April 20, 2022

This time really is different

The UK may have avoided a technical recession – two successive quarters of negative growth – in the first half of 2022, but a year from now this will be of little comfort. This is because – despite the protestations of the US Bidon administration – the downturn in economic activity in the latest (February) growth figures – 0.1 percent, down from 0.8 percent in January – has nothing to do with Putin’s invasion of Ukraine. Rather, the decline in economic activity is the result, primarily, of a massive global shortfall in energy, with fossil fuel extraction impaired by the lack of investment during the lockdowns, and with oil down some four million barrels a day from its November 2018 peak.

Last autumn, these energy shortages translated into painful spikes in prices, which helped fan the flames of a general inflation resulting from broken supply chains and the rapid spending of two-years’ worth of state pandemic handouts – mostly to corporations and the wealthier half of the population. Much of the additional demand generated by state spending, however, has already disappeared – in part due to the additional price of almost everything within the economy at a time when wages are failing to keep up.

In this, at least, the inflation of the 2020s is very different to its 1970s cousin. In those days, wages were protected by a combination of strong trade unions, governments committed to maintaining full-employment, and financial controls that prevented investor-flight. None of those constraints exists today and are not compensated for by a minimum wage which, if set too high, can only result in fewer jobs. In a few sectors of the economy – such as HGV haulage last autumn – market forces have driven up wages. Although even here, employers have preferred to offer golden handshakes rather than an increase in the hourly wage…

…click on the above link to read the rest of the article…

Coming Up For Air

April 20, 2022

COMING UP FOR AIR

“A government big enough to give you everything you want is a government big enough to take from you everything you have.” – Originally attributed to Thomas Jefferson, but the actual author is now in question.

“That’s another (fine) mess you’ve gotten me into.” – Laurel & Hardy catchphrase.

Even though I’ve written about our collective insanity for well over 10 years now, to actually witness it’s metamorphosis from slow burn to raging wildfire is both frightening and breathtaking in scope and intensity. Unfortunately, we have many miles to go before some semblance of sanity returns, both collectively and individually. We are truly living in interesting times.

Those who still struggle to maintain some sense of sanity during these times are at a distinct disadvantage when dealing with raw unfiltered insanity. “We the Somewhat Sane” rely upon clearly defined rules of social, political and emotional decorum. We call this civilization, with a strong emphasis on being civil.

But we are severely (self) constrained when dealing with others out of a debilitating belief in the right of all to their own beliefs and self-determination. And expect others do the same with us. Normally this works reasonably well, at least in a civil society where the lunatics aren’t running the insane asylum. Or at least the transgressions are kept down to a dull roar, as my mother used to say.

We who are reasonably sane are self-constrained, those who are not are not. And to be perfectly frank, the unconstrained are quite alarming when witnessed up close and personal. It’s a proximity thing. A bear seen in the distance is an entirely different animal than one seen loping through the front lawn while you’re lounging on the porch. Or worse, you round the corner and find yourself between mama bear and her cubs.

…click on the above link to read the rest of the article…

Global Rice Production Set To Plunge 10%, Threatening Half Of Humanity

April 20, 2022

Global Rice Production Set To Plunge 10%, Threatening Half Of Humanity

Farmers in China, India, Bangladesh, Indonesia, and Vietnam — the largest rice-producing countries could experience reduced output due to soaring fertilizer prices.

The International Rice Research Institute warns that harvests could plunge as much as 10% in the next season, equating to about 36 million tons of rice, or enough food to feed a half billion people, according to Bloomberg.

Chemical fertilizers, such as nitrogen, phosphorus, and potassium, are the most applied nutrients for high-yielding rice cultivation. Farmers have been particularly vulnerable to soaring fertilizer prices as some have reduced the amount of nutrients to save costs. This threatens future harvests as production declines could stoke food inflation for a crop that feeds half of humanity.

Humnath Bhandari, a senior agricultural economist at the institute, said the 10% drop in global rice production is a “very conservative estimate.” He said if the Ukraine conflict continued and fertilizer prices remained high and supply limited, then the decline of rice output could be even more severe. This may trigger a full-blown global food crisis, similar to the one that the UN has been warning about.

Russia and Belarus are big suppliers of every major type of crop nutrient. Western countries have sanctioned both, which have limited fertilizers shipments to the rest of the world, crimping supply and why prices are soaring. On top of this, Moscow has reduced or halted nutrient exports.

Nguyen Binh Phong, the owner of a fertilizer shop in Vietnam’s Kien Giang province, said nutrient costs have soared three-fold over the past year, forcing farmers in the region to reduce fertilizer use by up to 20% because of rising prices.

“When the farmers cut fertilizer use, they accept that they will get lower profit,” Phong said.

…click on the above link to read the rest of the article…

Will the bullwhip do the Fed’s job on inflation?

April 12, 2022

Will the bullwhip do the Fed’s job on inflation?

Industrial rents unlikely to cool anytime soon — With inventories building and supply chain bottlenecks easing, is deflation next?

The only thing surprising about the freight market slowdown is the speed at which it’s unfolding. The supply chain “bullwhip effect” is both predictable and expected. The surge of inventories and declining freight costs/capacity imbalances will be deflationary.

The trucking market has slowed. Demand for trucks usually surges during the Spring, but this year, demand for truckload freight has broken out of this typical seasonal pattern.

Outbound Tender Volume Index (OTVI) is an index which measures the volume of truckload order requests in the contract truckload market. The OTVI chart shows year over year activity from 2018 to this year.

The bullwhip effect is something every supply chain 101 student learns about – the idea that upstream providers overproduce in reaction to a one-time demand shock.

What is the bullwhip effect?

According to the Chartered Institute of Procurement and Supply, the bullwhip effect “is defined as the demand distortion that travels upstream in the supply chain from the retailer through to the wholesaler and manufacturer due to the variance of orders which may be larger than that of sales.”

The best way to think of this in terms of COVID is that in the early part of the cycle, the Federal Reserve was pouring trillions of dollars into the economy to ensure that the market didn’t collapse. Consumers went out and spent all of that money on physical goods. At the same time, production in China and the U.S. was shut down or limited. The combination – stimulating consumption but limiting production – caused the American consumer to burn through almost all inventory.

Retailers ordered more goods based on the inflated demand at that time. Upstream to them, wholesalers and manufacturers did the same. Along that chain some even ordered bumper stock.

…click on the above link to read the rest of the article…

Will Famine Emerge by Year End? Yes.

April 9, 2022

Will Famine Emerge by Year End? Yes.

Where Will The Food Riots Start?

April 8, 2022

Where Will The Food Riots Start?

Global food prices have never risen so fast and have never been so high, and as have detailed multiple times in recent months (as this is not simply a one-month, ‘blame it on Putin’ crisis), most recently here, the pieces are in place for some serious tears to form in the social fabric of many nations.

While food prices may be generally seen as an emerging market problem, they will have an effect on developed markets too, something we will see in the upcoming French election.

And as the following table from Bloomberg Economics shows, while Pakistan is already in the midst of a political crisis and Egypt is already coming under financial pressure (along with Peru and Sri Lanka), the surge in food prices is also adding to problems in the developed world.

Nigeria, India, Colombia, Philippines, and Turkey all bear watching, along with Russia…

In fact, as PeakProsperity’s Chris Martenson details below, the inflation riots have begun. Peru and Sri Lanka both are experiencing violence as inflation spirals the prices of basic necessities higher and higher.

We’ve been here before, and recently.

The Arab Spring was a period of social unrest and riots in 2010 and 2011 that was triggered, in part, by spiking food costs.

As Alfred Henry Lewis said in 1906, “There are only nine meals between mankind and anarchy.”

But before pure anarchy comes, society experiences increasing unrest and the erosion of social bonds and niceties. That’s where we are now.

Food prices today are higher than they were in 2010, so the protests are not at all surprising. We can and should expect more of them.

Worse than that, however, is the prospect of actual famine and food shortages.

…click on the above link to read the rest of the article…

David Stockman on the Coming Stock Market Crash of Biblical Proportions

April 8, 2022

David Stockman on the Coming Stock Market Crash of Biblical Proportions

International Man: Whether we like it or not, the reality is, the Federal Reserve has an enormous influence over the dollar and the stock market.

And right now, the Fed has an urgent and fateful decision to make.

It can keep printing trillions of dollars, let inflation skyrocket or tighten monetary policy, and watch the stock market crash.

In other words, it can sacrifice the stock market or the dollar.

David, what do you think the Fed will do, and what are the implications?

David Stockman: Well, I think whether it wants to or not, the Fed will crash the stock market. The Fed has painted itself into a hellacious corner because it’s made such a fetish out of its 2% inflation target, especially since January 2012, when it officially adopted this quantitative target.

In fact, most of the massive money printing, which has occurred since 2012, when the economy was pretty much recovered from the Great Recession anyway, has been justified by an inflation shortfall, which wasn’t true, but that was the justification.

They were trying to raise inflation and therefore felt that they could keep quantitative easing at these huge rates, including $120 billion per month, until recently. And as a result, we’re now in a world in which inflation is heading towards double digits.

I think they’re going to have no choice but to throw on the brakes much harder than the market is expecting, much harder than they would like to do, or maybe even intend at the moment, but there’s no choice.

Now, when you have double-digit inflation, number one and second, you’re going into what’s going to be a nasty election season in which the Republicans will finally see hope for their salvation in a horrendous battle on the inflation front blaming the Democrats and Biden.

…click on the above link to read the rest of the article…

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