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Commodities

The Role of Energy Markets in the War in Ukraine

The Issue:
Even though the West could cause great harm to Russia with sanctions on Russian energy exports, so far the United States and Europe have been…

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The Issue:

Even though the West could cause great harm to Russia with sanctions on Russian energy exports, so far the United States and Europe have been reluctant to impose the harshest controls on energy. Despite the relatively few direct sanctions on Russian energy products however, the markets for oil and gas have been roiled since the Russian invasion of Ukraine, contributing to rising prices and inflation around the world. As the West finds ways to move away from Russian energy supplies and Russia becomes more isolated from the world economy there will be massive long-term effects for Russia’s energy production.

The Facts:

  • Revenues from oil and natural gas made up 45% of Russia’s federal budget in 2021. Energy exports accounted for roughly two-thirds of the country’s export earnings prior to the pandemic, with oil being Russia’s most important export by far, accounting for around half of export earnings (see chart).
  • Russia is the second most important exporter in world energy markets and Europe is especially dependent upon energy exports from Russia. 
  • Russia is already exporting less oil — about half a million barrels per day in April or possibly as much as three million barrels per day — thanks to sanctions that have made it harder to clear payments, charter ships and obtain insurance. In a tight 100 million barrel per day oil market even a relatively small decrease in supply can have big effects on prices.
  • As one of the lower cost oil producers in the world, Russia tends to profit greatly when there's a big rise in oil prices. However, some of the windfall gains from higher oil prices has been whittled away from Russia by discounts to big buyers like China and India; extra fees that are being paid to insurance companies; higher fees to charterers; and so on.
  • While the Russian supplies of natural gas to Europe have not faltered thus far, Europeans are moving to reduce their near-term dependence on Russian gas exports and to reduce their dependence on natural gas altogether in the longer term. My estimate is that this year alone we could see perhaps a shift of about 20% of European gas to non-Russian sources, mostly through purchases of liquefied natural gas (LNG). In the longer term, the Russian invasion of Ukraine has provided Europe with additional incentives to accelerate efforts to transition towards clean and efficient alternatives to natural gas.
  • Sanctions that limit Russian access to western technology limit its potential for future productive capacity in energy exports, especially with respect to gas.

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Spread & Containment

Stock Market Today: Dow Jones, S&P 500 Edge Higher; Trip.com Stock Surges From China Covid Easing

Markets opened in the green today as they rebound from Monday’s losses.
The post Stock Market Today: Dow Jones, S&P 500 Edge Higher; Trip.com Stock…

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Stock Market Today Mid-Morning Updates

On Tuesday, the Dow Jones Industrial Average is up by 270 points as it followed modest losses on Wall Street. Investors are still weighing the risks of red-hot inflation as rates continue to rise. Aside from the U.S., European Central Bank Leader Christine Lagarde downplayed recession concerns in the eurozone, already being destabilized by Russia’s war on Ukraine. She also says that her team is ready to raise rates at a faster pace if needed, in order to combat inflation.

Shares of Morgan Stanley (NYSE: MS), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), and Goldman Sachs (NYSE: GS) raised their dividends after passing their annual stress tests. For instance, Goldman Sachs is boosting its dividend payout by 25% to $2.50 per share. On the other hand, shares of Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN) are up today after China announced that it will be easing Covid-19 quarantine rules for international arrivals.

Among the Dow Jones leaders, shares of Apple (NASDAQ: AAPL) are up by 0.13% today while Microsoft (NASDAQ: MSFT) is down by 0.79%. Meanwhile, Disney (NYSE: DIS) and Nike (NYSE: NKE) are trading mixed on Tuesday. Among the Dow financial leaders, Visa (NYSE: V) is up by 0.17% while JPMorgan Chase (NYSE: JPM) is also up by 1.67%

Shares of EV leader Tesla (NASDAQ: TSLA) are up by 0.83% on Tuesday. Rival EV companies like Rivian (NASDAQ: RIVN) are down by 0.17%. Lucid Group (NASDAQ: LCID) is down by 1.09% today as well. However, Chinese EV leaders like Nio (NYSE: NIO) and Xpeng Motors (NYSE: XPEV) are trading mixed today. 

Dow Jones Today: U.S. Treasury Yields Inches Higher; House Price Increases Slows Down In April 

Following the stock market opening on Tuesday, the S&P 500, Dow, and Nasdaq are trading higher at 0.68%, 0.89%, and 0.31% respectively. Among exchange-traded funds, the Nasdaq 100 tracker Invesco QQQ Trust (NASDAQ: QQQ) is up by 0.28% while the SPDR S&P 500 ETF (NYSEARCA: SPY) is also up by 0.67%. 

The benchmark 10-year U.S. Treasury yield currently hovers around 3.22% as the market continues to push against a bear market. Oil prices rallied for the third day today as major producers like Saudi Arabia looked unlikely to be able to boost output significantly. This comes as the West agreed to explore ways to cap the price of Russian oil. Brent crude, for instance, currently trades at around $116 per barrel.

Home prices increased slower than before in April and could be a potential sign of a cooling in prices. Diving in, prices rose by 20.4% nationally in April compared with a year earlier. This is according to the S&P CoreLogic Case-Shiller Index. For comparison, home prices increased by 20.6% year-over-year in March. Cities like Tampa, Miami, and Phoenix continue to lead the pack with the strongest price gains. Tampa home prices, for instance, are up by a whopping 35.8% year-over-year.

[Read More] Top Stock Market News For Today June 28, 2022 

Trip.com Stock Gains Following Better-Than-Expected Quarterly Performance On Travel Rebound; China Covid Easing

Trip.com Group (NASDAQ: TCOM) seems to be among the top gainers in the stock market now. Evidently, TCOM stock is now up by over 14% at the opening bell today. Overall, this likely stems from the company’s latest financial update. Getting straight into it, Trip.com reported a quarterly loss per share of $0.01. Furthermore, the company’s total quarterly revenue is $649 million. For reference, consensus figures on Wall Street are a loss per share of $0.08 on revenue of $575.04 million. With these commendable results, investors looking to bet on the return of travel would be considering TCOM stock.

According to Trip.com, the company has recovering travel demand in global markets to thank for its latest quarterly performance. In particular, Trip.com highlights a bump in activity from consumers across its Europe and Asia Pacific user bases. This, the company believes, is a result of easing travel restrictions amidst countries in these regions. Moreover, Trip.com also notes that staycation-related travel in China is another notable contributor to growth for the quarter. Accordingly, its local hotel bookings are now up by 20% year-over-year.

On the whole, travel firms like Trip.com continue to thrive as consumers book their vacations. For its latest quarter, the company’s air-ticket bookings on global platforms are now up by a whopping 270% year-over-year. As mentioned earlier, this is mainly led by a rebound in demand from its European and Asian Pacific operations. Looking forward, CEO Jane sun notes that Trip.com will “remain adaptive to embrace the changing environment and be flexible with our strategies to swiftly seize growth opportunities.” With all this in mind, I could understand if TCOM stock is turning some heads in the stock market today.

TCOM stock
Source: TradingView

[Read More] Best Oil Stocks To Buy Right Now? 5 For Your Late June 2022 Watchlist 

Occidental Petroleum On The Rise Following Latest Berkshire Hathaway Stake Increase

Meanwhile, the likes of Occidental Petroleum (NYSE: OXY) seem to be gaining attention in the stock market now. For the most part, this is likely a result of the latest regulatory filing from Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A). Namely, Berkshire disclosed a purchase of an additional 794,000 shares of Occidental. This adds up to a $44 million transaction, bringing its total stake to about 16.4%. In total, Berkshire currently holds about 153.5 million shares of OXY stock, worth $9 billion.

All in all, Buffett’s focus on Occidental would likely draw attention to the energy firm’s shares. This is apparent as OXY stock is currently gaining by over 6% in the stock market now. According to Berkshire’s filings since March, the company’s average purchase price per share of OXY stock is $53. Following this investment, Berkshire would be bolstering its position as Occidental’s largest stakeholder. In second place on this front is investment firm Vanguard with an almost 11% stake. As a result of all this, it would not surprise me to see OXY stock making the rounds in the stock market now.

OXY stock
Source: TradingView

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The post Stock Market Today: Dow Jones, S&P 500 Edge Higher; Trip.com Stock Surges From China Covid Easing appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket.com.

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Economics

Soaring Inflation And Crashing Rates Are Sparking Trucking’s “Great Purge”

Soaring Inflation And Crashing Rates Are Sparking Trucking’s "Great Purge"

By Craig Fuller, CEO at FreightWaves

The last trucking market…

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Soaring Inflation And Crashing Rates Are Sparking Trucking's "Great Purge"

By Craig Fuller, CEO at FreightWaves

The last trucking market crash was in 2019. The current market could end up worse for small truckload fleets.

The freight market crash in 2019 was caused by two factors – a freight slowdown due to tariffs on Chinese imports and a surge of new fleets flooding the market, even as rates continued to fall. 

Until 2019, we had never seen that many new fleets enter the market, especially during a market downturn. During 2019 an average of 7,200 fleets entered the market per month compared to an average of 5,200 fleets per month during 2008-18. 

The 2019 drop in freight volumes wasn’t significant. At their deepest trough, tender volumes registered a 4.6% drop in year-over-year load requests, and that lasted for just a few short months (May-July).

Trucking is a commodity and anyone that has been around commodity markets understands that it doesn’t necessarily take a dramatic move on one side of the market to change the balance of supply/demand and cause significant price swings. 

In 2019, the trucking market already had too much capacity relative to demand. The year-over-year decline was only in the mid-single digits. But, it was enough to push rates below carriers’ operating costs.

Removing the cost of diesel from the spot rate, here is what the market looked like in 2019 (van per mile): 

  • Low: $1.51

  • Average: $1.59

  • High $1.75

We are nearing 2019’s rock-bottom, inflation-adjusted spot rates

Trucking companies have much higher operating costs now than they did in 2019, even when removing fuel from the number. Every fleet’s operating cost will be different, but using data from TCA, ACT, and FreightWaves’ own analysis, we can draw some conclusions about the cost increases that a fleet would experience in 2022 compared to 2019. 

Assuming a fleet averages 6,500 miles per truck per month and purchased a four-year-old used truck in 2019 at $50,000, plus sales tax, financed for five years at 5% interest, the monthly payment would cost around $0.15/mile. With used truck prices surging during the pandemic, a four-year-old used truck last fall would run $77,000. If the vehicle was financed with similar terms, the per mile cost would be around $0.23/mile.   

A driver employee with experience working for a top-paying fleet can expect to make around $0.62/mile. In 2019, the same driver would have made around $0.47/mile. 

Higher variable operating costs include insurance (+$.02/mile), maintenance (+$.06/mile), equipment (+$.08/mile) and driver wages (+$.15/mile).

All in, variable costs have increased at least $0.31/mile more for fleet operators in 2022 compared to 2019. These numbers are likely understated, as they don’t include increases related to back-office operations and support staff, which can vary widely among fleets. 

Adjusting the 2019 numbers, the rates per mile total: 

  • $1.82 (low) 

  • $1.90 (average)

  • $2.16 (high)

The current spot rate (net fuel) is $1.95/mile. On a variable cost-adjusted basis, the trucking spot rates have matched 2019 since May 2022 – $2.16/mile, dropping $0.21/mile. It’s likely to get worse. The month of May typically has among the highest rates we’ll see all year, with July and August being some of the weakest months. 

It is conceivable that spot rates will drop below the inflation-adjusted 2019 low of $1.82 per mile in July, since there doesn’t seem to be any near-term market catalysts to drive additional demand. 

U.S.- bound container volumes, which have been driving a substantial amount of the freight surge in the U.S. trucking market since 2020, are seeing a significant drop, as reported by Henry Byers, FreightWaves’ senior global trade analyst.  

There are also the economic challenges that are apparent in the economy, including record-low consumer confidence, declining construction and industrial activity, surging inflation, and a Federal Reserve that is determined to slow the economy down to tame inflation, even if it means putting the economy into a recession. 

All of this means that the freight market will likely encounter additional headwinds and there are more reasons to believe that trucking spot rates have further to fall.

Capacity matters

Of course, trucking is a two-sided market. Demand is only one part of the equation; capacity also matters. 

Capacity is really just a function of how much dispatchable capacity is in the market. Like 2019, the trucking industry has seen a record number of new entrants enter the trucking market to take advantage of what were strong market conditions and record high spot rates created because of government stimulus over the past two years. The number of new entrants into the trucking industry nearly doubled the 2019 monthly record average. Since 2020, the monthly average of new fleets entering trucking has increased to 13,370 per month, up from 7,200. In April, the number hit 23,479. 

This large number of new entrants means that the trucking industry has many companies that are brand new, have higher cost structures (because they joined when the freight market was peaking) and that have never experienced a downturn. 

This massive surge of dispatchable capacity was built for a market that had much more freight activity. If the economy contracts further, it could spell disaster for many of the most vulnerable operators.

The summer doldrums

Even if the economy doesn’t contract, July and August are always slower than June. It is the time of the year when supply chains take a break and get ready for the retail surges that typically begin after Labor Day. 

The retail surge is a really important part of the freight calendar and often offers some of the highest spot rate opportunities. In the first half of the year construction, auto, beverages, and fresh produce drive the surges in trucking. 

In the second half of the year, surges are caused by retailers scrambling to get inventories placed for the holiday shopping season. That may not happen this year, with many retailers’ inventories overstocked. Since their warehouses and distribution centers are full, they are reluctant to add additional inventory to their supply chain and will focus their efforts on liquidating what they currently have in stock.

Trucking spot rates will not increase significantly until the Great Purge is over

As long as the market has excess capacity, freight rates will remain depressed. It will take a substantial purge of capacity before spot market carriers can expect relief. 

FreightWaves editorial director Rachel Premack covered this topic last week in her article titled “the Great Purge.”

The unfortunate reality of trucking is that the market is often “feast or famine” and with so many new mouths to feed, the famine this year could be much worse than was experienced in 2019. 

Tyler Durden Tue, 06/28/2022 - 10:20

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Government

COVID Falls From G7 Agenda – Focus Now On Russia, Russia, Russia

COVID Falls From G7 Agenda – Focus Now On Russia, Russia, Russia

Remember at the beginning of this year when you could not turn on the TV…

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COVID Falls From G7 Agenda - Focus Now On Russia, Russia, Russia

Remember at the beginning of this year when you could not turn on the TV or log on to the web without being bombarded by a non-stop wave of covid fear mongering? 

Remember when you couldn't even ask questions about the validity of the claims made by Anthony Fauci, the CDC and others without getting booted from social media? 

Remember the insanity and the zealotry of the devout covid cult sitting in their cars with masks on, walking around outside with their masks on, and then getting right in people's faces when they didn't have a mask on?

The covid pandemic event was a near perfect combination of induced fear in the minds of cowards, along with induced authoritarianism in the minds of people who, deep down, desperately want to control everyone else around them.

Where did all the hype go?  It disappeared in a matter of weeks once the corporate media gave up on the narrative.  There were a few reasons for this...

First, the Infection Fatality Rate of covid was far too small to warrant all the doom mongering.  With an average IFR of only 0.27% (recently adjusted to 0.23%), the vast majority of people have nothing to worry about from the virus.  Second, the lie of the “pandemic of the unvaccinated was exposed.  In fact, states and countries that actually tracked “breakthrough infections” showed that the vaccinated were far more likely to get infected than people who were not vaccinated and had natural immunity.  Third, the vaccine passport efforts failed in the US at the federal level and in red states, and thus, the rest of the world saw that half the country could function perfectly fine without medical tyranny.

Once there is a working example that defies the medical tyranny model, other countries are going to demand answers for why they have to remain in lockdown while some people can be free?  Only a few nations with the most extreme authoritarianism (like China) continue to enforce lockdowns and vax controls.  

All the excuses for lockdowns and forced vaccinations fell apart in the US, and any further push for vax passports was inspiring millions of Americans to potentially take up arms.  So, the establishment walked away from the plan.  It was as simple as that.

This abandonment of the precious covid program has been made evident in the latest G7 summit, which does not seem to have covid listed as a topic of discussion, and the pandemic has so far been completely overshadowed by other concerns.  World leaders have clearly moved on and are not even wearing masks for show anymore (If the vaccines actually work, what do you need a mask for?  If they don't work, then why take one?).  Instead, the subject of Russia and the war in Ukraine is dominating G7.  Secondary topics include climate change and “gender equality.”

The notion of covid as a nothing-burger issue seems to fall in line with shifts in public focus.  Inflation is currently on the top of the list of biggest problems facing the US (and most other countries), followed by violent crime.  Covid rates at the very bottom of the list in polling.  

The G7 summit will surely touch on inflation and other economic issues, but they appear intent on doing so only as a way to blame Russia for our economic decline.  To reiterate a fact that Joe Biden and many other world leader refuse to admit to:  The inflation crisis started WAY before Russia invaded Ukraine.  While sanctions against Russia will definitely expound on supply chain problems, the bigger issue is central bank fiat printing and too many dollars chasing too few goods.  

The Ukraine situation is also fading as a subject of widespread outrage among Americans.  Europe is more immediately affected because of their dependency on Russian oil and natural gas, but questions are rising about why we should be so focused on Ukraine when there are much bigger problems closer to home.  Overall, establishment politicians continue to ignore the one issue that the majority of the world wants answers and solutions for, which is economic decline.  But, in order to offer answers, they would first have to acknowledge the true gravity of the threat, and they're not going to do that until it's far too late to do anything about it. 

Tyler Durden Tue, 06/28/2022 - 08:47

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