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The Perfect Storm In Oil Caught Markets Off Guard

The Perfect Storm In Oil Caught Markets Off Guard

By Irina Slav of Oilprice.com

Just a couple of years ago, some of the biggest names in…

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The Perfect Storm In Oil Caught Markets Off Guard

By Irina Slav of Oilprice.com

  • Just a couple of years ago, some of the biggest names in the oil market could have never imagined the current demand and supply situation.

  • BP is now admitting it may have underestimated the world’s thirst for oil.

  • The electrification of transport is not undermining demand as quickly as some analysts predicted.

Two years ago, at the height of the pandemic, BP wrote in its annual Energy Outlook that global oil demand had peaked at around 100 million bpd in 2019, and it was only going to go down from then on because of the effects of the pandemic and the accelerated energy transition. Just two years later, BP is admitting it may have underestimated the world’s thirst for oil, although it heroically stuck to its long-term forecast that the electrification of transport will eventually usher in the era of peak oil demand.

Investment banks, meanwhile, foresaw the rebound in demand because it was the natural thing to happen after the pandemic depression caused by all the lockdowns. What they did not foresee—because it is impossible to foresee—was the extent and speed of the rebound.

Goldman Sachs’ Jeffrey Currie recently acknowledged this gap between expectations and reality in an interview with Bloomberg, saying,

The markets moved faster and the fundamental tightness is deeper than what we would have thought three or six months ago.

“This is where we should be, but it is a lot deeper than we would have initially thought. Energy and food right now, as we go into the summer months, are severely skewed to the upside,” Currie added.

It may be interesting to note that even three to six months ago, long before Russian supply became a factor in the upward potential of oil prices, there were few but authoritative voices that argued the oil market is, in fact, in balance.

Citi’s Ed Morse was one of these voices. In February, he told Bloomberg’s Javier Blas he expected the oil market to move into surplus territory thanks to increased oil production from the United States—the Permian, specifically—Brazil, and Canada. 

Indeed, the Energy Information Administration recently forecast oil production in the Permian would hit a record high this month, but that does not appear enough to offset the global oil imbalance, with many U.S. producers signaling they are unwilling—or are unable because of shortages and delays—to boost production.

In Canada, production is rising, and according to Alberta’s Premier, Jason Kenney, the country’s total could rise by close to 1 million bpd, but this has yet to happen. In Brazil, production is also on the rise but has so far failed to make a difference in the price department.

Of course, the reasons for this price situation are first, the sanctions against Russia, which happens to be the world’s largest oil and fuel exporter, and second, OPEC’s inability to produce as much as it agreed to because of chronic problems with some members of the cartel. Meanwhile, the two OPEC members that have enough spare capacity to offset the loss of Russian barrels, Saudi Arabia and the UAE, are wary of tapping it.

Perhaps somewhere there is a genius oil analyst that foresaw this state of affairs.

Perhaps it doesn’t take a genius to spot the patterns:

  • those OPEC members that cannot hit their own production quotas have been finding it difficult to boost production for years; relations between the Middle Eastern oil states and the West have been deteriorating also for years.

  • And the fact that Russia is the world’s biggest oil exporter is not exactly news.

Perhaps the biggest surprise, the thing that was extremely difficult to foresee, was the speed with which demand for oil rebounded and how resilient this demand has turned out to be despite much higher oil prices that the world has seen for years. In hindsight, it’s easy to attribute it to pent-up demand after the lockdowns, but hindsight is known to make it easier to explain events that have been near impossible to forecast.

The trouble with oil and any other analysis is, of course, that there are always assumptions that need to be made for lack of all the necessary information. Assumptions are often safe to make but sometimes, when a wild card enters the game, assumptions quickly become worthless. In this case, the wild card was Russia, but even the known cards refused to play into the assumptions of analysts.

U.S. production is not growing as much or as fast as some expected as WTI soared above $100 and stayed there. The electrification of transport is not undermining demand because the electrification of transport is happening a lot more slowly than expected. And, perhaps more importantly, OPEC+ may say it will boost production by 1 million additional barrels daily but whether words will translate into actions is very far from certain.

These seem to be all the necessary ingredients for a perfect oil storm, spiced up with the latest massive oil field outage in Libya. Things are, indeed, worse than pretty much everyone expected, and, what is perhaps more worrying, they will remain so for a while yet because there is no quick fix on the table.

The latest from the world’s biggest consumer is putting limits on exports. This would certainly lead to lower domestic prices but will push international prices further still and maybe hurt Washington’s friendship with Brussels. The latest from the world’s biggest importer is that it is stocking up on crude while refinery output declines. Stocking up does seem like the smart thing to do during this storm.

Tyler Durden Mon, 06/20/2022 - 11:10

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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.

*  *  *

Please Subscribe to MishTalk Email Alerts.

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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