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Global Diesel Shortage To Push Oil Prices Much Higher

Global Diesel Shortage To Push Oil Prices Much Higher

By John Kemp, senior market analyst at Reuters

Worsening diesel shortages in the United…

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Global Diesel Shortage To Push Oil Prices Much Higher

By John Kemp, senior market analyst at Reuters

Worsening diesel shortages in the United States and the rest of the world are intensifying upward pressure on petroleum prices and threaten to recreate the conditions that led to the record price spike in 2008.

U.S. distillate fuel oil inventories, the category including diesel, fell by 2 million barrels to 112 million barrels last week, according to high-frequency data from the U.S. Energy Information Administration (EIA).

Distillate stocks have declined in 52 of the last 79 weeks by a total of 67 million barrels, and are at the lowest for the time of year since 2014 and before that 2008 (“Weekly petroleum status report”, EIA, March 23).

Distillates have emerged as the tightest part of the oil market: U.S. inventories are 20% below the pre-pandemic five-year average for 2015-2019 compared with deficits of 11% in crude and 1% in gasoline.

If stocks move in line with seasonal patterns over the last ten years, inventories are expected to drop to a low of 104 million barrels before the middle of the year, which would make them as tight as they were in 2008.

In the reasonable worst case scenario, however, stocks could deplete to as little as 93 million barrels, which would be critically low and lead to explosive upward pressure on prices.

Global Shortfall

Similar distillate shortages have emerged in Europe and Asia as the rapid recovery in consumption after the pandemic has outrun increased output of crude oil and refinery production of diesel.

By the end of February, Europe’s distillate stocks had already fallen to the lowest seasonal level since 2008. Singapore’s stocks are currently at the lowest seasonal level since 2006.

Middle distillates such as diesel and gas oil are primarily used in freight transport, manufacturing, farming, mining, and oil and gas extraction, making them the most cyclically sensitive part of the oil industry. Synchronised global expansion in North America, Europe and Asia has created an acute shortage much as it did in 2007/2008.

In consequence, distillate prices are leading the entire oil market higher, with upward pressure on diesel prices spilling over into the adjacent market for gasoline and the upstream market for crude. 

In the United States, the average on-road price of diesel has climbed by 61% over the last year compared with a 47% rise in gasoline prices, according to the EIA.

In 2008, distillate shortages helped to push crude to an inflation-adjusted peak over $187 per barrel around the middle of the year, after distillate stocks hit abnormal seasonal lows a few months earlier.

Ukraine Invasion

A similar scenario seems to have been playing out this year. But Russia’s invasion of Ukraine and sanctions imposed in response threaten to make the shortage of distillates even more severe.

Russia is a major exporter of middle distillates as well as distillate-rich residual fuel oil and crude, primarily to countries in Europe.  Russia accounted for 29% of Europe’s imported crude oil and 39% of its imported products in 2020, according to BP (“Statistical review of world energy”, BP, 2021).

Russia’s Ukraine invasion and escalating sanctions pose an increasing threat to these distillate and other oil flows.

Futures markets have anticipated a possible disruption by pushing distillate prices to an enormous premium over crude. Front-month European gas oil futures prices are trading at a premium of $46 per barrel over Brent, up from $15 before the invasion and less than $4 a year ago.

In real terms, current gas oil prices of around $167 per barrel are already in the 97th percentile for all months since 1990, though still well below the inflation-adjusted peak of $226 in 2008.

Ultra-high prices are a signal to refiners to maximize crude processing and distillate production, and to consumers to reduce diesel use as much as possible, to rebuild depleted inventories.

Over the next three months, diesel output needs to accelerate significantly, consumption growth must slow, and the market must avoid a significant loss of Russian exports. If that is not possible, the result is likely to be a severe price spike, which will enforce a reduction in consumption through a business cycle slowdown.

Tyler Durden Fri, 03/25/2022 - 05:00

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Economics

Housing Affordability Index Drops To Lowest Rate Since 1989, Still Way Too High

Housing Affordability Index Drops To Lowest Rate Since 1989, Still Way Too High

Authored by Mike Shedlock via MishTalk.com,

The National…

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Housing Affordability Index Drops To Lowest Rate Since 1989, Still Way Too High

Authored by Mike Shedlock via MishTalk.com,

The National Association of Realtors says "affordability" dropped to 98.5 in June, the lowest since 1989.

Housing Affordability Index and mortgage rates via St. Louis Fed.

Affordability in June Was the Worst Since 1989

The Wall Street Journal reports Affordability in June Was the Worst Since 1989

It was more expensive to buy a U.S. home in June than it has been for any month in more than three decades, as record-high home prices collided with a surge in mortgage rates.

The National Association of Realtors’ housing-affordability index, which factors in family incomes, mortgage rates and the sales price for existing single-family homes, fell to 98.5 in June, the association said Friday. That marked the lowest level since June 1989, when the index stood at 98.3.

Housing Affordability Index

The NAR's Housing Affordability Index is based on median income data current  through 2017, projected forward. 

Only 13 months of data is available on Fred, the St. Louis Fed repository.

Affordability is based on whether the median family earns enough income to qualify for a 30-year fixed mortgage loan on the median single-family home without spending more than 25% of the income on payment for principal and interest.

An index value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 means a median family has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. 

Inquiring minds may wish to look at the NAR's Housing Affordability Index Calculations.

Curiously, the NAR concludes the median household can nearly always afford the median home price.

Do you believe that? More importantly, even if accurate, so what? 

The median person who can afford a home and wants a home probably already has a home. 

First Time Buyer Index

In terms of new and existing home sales, what matters is what a buyer who does not have a home, but wants a home, is willing to pay and can pay. 

The First-Time Buyer Index for 2022 Q2 fell to 68 assuming a starter home price of $351,500. 

Can 68 percent of would-be buyers afford (and find) a $351,500 home in a neighborhood in which they want to live? 

68 percent is a much more reasonable number than the overall 98.5 percent calculation, but that still strikes me as too high. 

Case-Shiller National Home Price Index

I have not updated my full set of Case-Shiller home price charts for a while but that chart is current (May data). 

Case-Shiller lags by a few months so it's even worse than shown. 

The pre-pandemic index was 212 and it's now 306. That's a 44 percent jump with real median wages declining, property taxes soaring, food soaring, and energy soaring.

Yet, the NAR says that median overall affordability has declined only to the 98.5 percent level. Yeah, right.

Meanwhile, rent and food keep rising and the price of rent will be sticky. Gasoline is more dependent on recession and global supply chains.

Food Prices Rise Most Since February 1979

For more on the price of food, please see Food at Home is Up 13.1 Percent From a Year Ago, Most Since February 1979

For more on rent, please note Tennant's Unions Demand Biden Declare a National Emergency to Stop Rent Gouging

For more on producer prices please see Producer Prices Decline For the First Time Since the Pandemic Due to Energy

Spotlight on Fed Silliness

The Fed has blown three consecutive bubbles trying to produce two percent consumer inflation while openly promoting raging bubbles in assets especially housing.

*  *  *

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Tyler Durden Sun, 08/14/2022 - 12:30

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Economics

Summer Teen Employment

Here is a look at the change in teen employment over time.The graph below shows the employment-population ratio for teens (6 to 19 years old) since 1948.The graph is Not Seasonally Adjusted (NSA), to show the seasonal hiring of teenagers during the sum…

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Here is a look at the change in teen employment over time.

The graph below shows the employment-population ratio for teens (6 to 19 years old) since 1948.

The graph is Not Seasonally Adjusted (NSA), to show the seasonal hiring of teenagers during the summer.

A few observations:
1) Although teen employment has recovered some since the great recession, overall teen employment had been trending down. This is probably because more people are staying in school (a long term positive for the economy).

2) Teen employment was significantly impacted in 2020 by the pandemic.

Click on graph for larger image.

3) A smaller percentage of teenagers are obtaining summer employment. The seasonal spikes are smaller than in previous decades. 

The teen employment-population ratio was 38.4% in July 2022, down from 38.9% in July 2021. The teen participation rate was 43.6% in July 2022, down from 43.8% the previous July. 

So, a smaller percentage of teenagers are joining the labor force during the summer as compared to previous years. This could be because of fewer employment opportunities, or because teenagers are pursuing other activities during the summer.

3) The decline in teenager participation is one of the reasons the overall participation rate has declined (of course, the retiring baby boomers is the main reason the overall participation rate has declined over the last 20+ years).

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Economics

Braxia and KetaMD, CEOs McIntyre and Gumpel Speak on Acquisition

Last week, the Canadian company Braxia Scientific acquired 100% of the issued and outstanding stock of KetaMD, Inc. This is an exciting acquisition, and…

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Last week, the Canadian company Braxia Scientific acquired 100% of the issued and outstanding stock of KetaMD, Inc. This is an exciting acquisition, and in today’s interview, The Dales Report’s Nicole Hodges talks with CEOs Dr. Roger McIntyre and Warren Gumpel of Braxia Scientific and KetaMD respectively.

For some background information, KetaMD is a U.S. based, privately-held, innovative telemedicine company, with a mission to address mental health challenges via access to technology-facilitated ketamine-based treatments. Braxia Scientific is Canada’s first clinic specializing in ketamine treatments for mood disorders. They recorded revenue of $1.49m for 2022 fiscal year, ended March 31. On a year-over-year basis, revenue increased 47.5%.

Here’s some highlights from the interview.

KetaMD gives Braxia a presence in the US

Dr. McIntyre says that KetaMD gives Braxia what they’ve had as their vision from the beginning: a US presence. KetaMD is a living program. It’s already running, has infrastructure, and patients. McIntyre believes that a program like KetaMD is something Braxia’s needed to scale and obtain commercial success.

With telemedicine, Braxia has a potential to serve a gap in access. The zeitgeist of “patient going to medicine” has flipped, McIntyre says. “Now it’s medicine goes to the patient, and that is long overdue.”

COVID speeding a trend that was already happening

In 2020, 80% of physicians indicated they had virtual visits. That’s a number up from 22% the year before. But this is something that many doctors, McIntyre included, believe always should have happened. The pandemic only was the catalyst for innovation and making the option viable.

While some treatments will always need a clinic or a hospital, McIntyre believes some treatments can be done safely at home. And they are, for many chronic diseases. He feels implementing ketamine and psychedelics would be among these treatments where service could be expanded into the home. It would require careful SOPs in place, best practices, and surveillance. But he believes Braxia Scientific could deliver this with KetaMD.

Gumpel to stay as CEO of KetaMD

Gumpel says that KetaMD benefits in this acquisition from being part of the world’s most prominent researchers in depression, psychedelics, and ketamine. In the acquisition, he’ll stay on as CEO. He admits that Dr. McIntyre has been a huge part of collecting the data on the safety of ketamine treatment, and has a strong motivation to “see this thing through until most of society can access that – or at least the people that need it and want it.”

Gumpel admits he has a personal connection to ketamine treatment. As a person who has experienced bouts of depression for years, it saved his life, he says. He is grateful he was living within walking distance of ketamine treatment in Manhattan. It made him extremely aware of the accessibility gap, which in part inspired KetaMD.

Be sure to tune in for the full interview regarding Braxia and KetaMD, right here on The Dales Report!

The post Braxia and KetaMD, CEOs McIntyre and Gumpel Speak on Acquisition appeared first on The Dales Report.

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