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Fuller Treacy Comment of the Day - Oil Supply Fears, World "Scrambling" for Food, and The Dirty Secret of Inflation...

Published: 10:13 22 Mar 2022 GMT

Fuller Treacy Comment of the Day - Oil Supply Fears, World "Scrambling" for Food, and The Dirty Secret of Inflation...

Comment of the Day

Video commentary for March 21st 2022

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: bond yields leap higher again, oil firm, gold steadies, stock markets stable, Dollar firm, pricing power of companies is crucial to the continued resilience of stocks. 


Oil Surges With Growing Supply Fears as EU Considers Russian Ban

This article by Julia Fanzeres for Bloomberg may be of interest to subscribers. Here is a section:

In weeks prior, the EU sanctioning Russian oil “seemed unrealistic given their reliance on Russian energy supply,” said Rohan Reddy, a research analyst at Global X Management, a firm that manages $2 billion in energy-related assets. If sanctions were instilled, “it would basically shave off a full 4-5% of global oil supply,” as “Europe bought up around 40-45% of Russia’s total oil production in 2021.”

The global oil market has been thrown into turmoil by Russia’s invasion of Ukraine, with the U.S. and Europe imposing sanctions on Moscow and crude buyers shunning the country’s cargoes. Brent neared $140 a barrel earlier this month to hit the highest since 2008, before seeing a massive pullback that briefly put the market into bear territory. Prices have seen unprecedented volatility, with frequent intraday swings of about $10 and broader commodity markets seizing up amid a widespread liquidity crunch.

The rally in oil prices has spurred importing nations to pressure other producers to step up supply, including members of the Organization of Petroleum Exporting Countries. During the weekend, Japan urged the United Arab Emirates to increase exports. Meanwhile, oil giant Saudi Aramco plans to raise spending as it seeks to boost output.

Saudi Arabia said it cannot be held responsible for any drop in oil output if it doesn’t get more help to deter attacks from Yemen. Yemen’s Houthi rebels attacked at least six sites across Saudi Arabia late Saturday and early Sunday, including some run by Aramco. Saudi Arabia has been facing calls from oil-consuming nations such as the U.S. to increase supply output.


My view - Cutting demand for oil is not easy. It doesn’t usually happen by choice. Prices rise to a point where it is unaffordable and demand falls. That usually means a recession. Therefore, any effort to manage prices must rely on increasing supply.


Email of the day on world hunger

*Almost certainly widespread famine within a year*: _15% of world’s calories come from wheat. 1/3 of all wheat comes from Russia and Ukraine…_

Russia has banned export of wheat; a lot of wheat supply blocked. Whole planet earth operates on a 90-day food supply. Once we stop making food the world runs out in 90 days. Most vulnerable nations lose the supply first; very quickly a massive bifurcation. Already have 1bn living on under 1200 calories…

The even bigger problem is the future planting season. Wheat spring planting season is right now; not a lot of planting going on…

This is because of the fertilizer problem. All fertilizer is made up of nitrogen, phosphorus, or potassium. All farmers must use this. Without fertilizer crop does not grow. Nitrogen is made from natural gas. Nat Gas prices have doubled. The price of nitrogen-based fertilizer has gone from 200 per ton to 1000 per ton. 10% of world phosphate and 25% pf potash is from Russia and that has been banned for export. Prices on phosphate and potash have sky-rocketed too. Now it is so expensive to grow crop that farmers are pulling out of production.

The world is “scrambling” for food right now, corn, soybeans etc. skyrocketing. Strategic reserves of food being released now…

A bad weather year can be disastrous. Regardless, it will be a humanitarian disaster within 12 months and we will see hundreds of millions will go starving (think famine)

We just don’t have enough food. The way supply chains are set up just don’t work.


My view - Wheat prices accelerated to test the 2008 peak near 1200¢ and paused over the last week. War in Ukraine and the slow start, or potential absence, of a planting season are obviously major considerations for its customers. Russia’s efforts to capture the entire Black Sea coast are an additional obvious headwind to exports.


The Dirty Secret of Inflation: Corporations Are Jacking Up Prices and Profits

This article from The Nation last month may be of interest to subscribers. Here is a section:

From CNBC: Oil giant BP reports highest profit in 8 years on soaring commodity prices

From Reuters: Cereal maker Kellogg Co. forecast full-year profit growth above market expectations on Thursday, riding on higher product prices that helped overcome labor strike disruptions and soaring input costs in the fourth quarter.

From The New York Times: Procter & Gamble (NYSE:PG)’s sales jump as consumers brush off rising prices.

From The Ticker: McDonald’s to raise prices despite record revenue

From Yahoo Finance: Amazon stock soars 15% after earnings, will hike Prime membership fee

US Senator Elizabeth Warren put the pieces together when Fed chair Jerome Powell appeared last month before the Senate Banking, Housing, and Urban Affairs Committee. Offering a lesson in what she referred to as “Econ 101,” the senator from Massachusetts led Powell through a series of questions related to inflation.


My view - Bond prices continue to accelerate lower with 10-year Treasury yields jumping nearly 15 basis points today. Stock markets remain reasonably steady in what is a clear role reversal. Usually, bonds do well in times of economic stress and the stocks decline. Right now, inflationary pressures are weighing heavily on bonds, but stocks are steadier because companies have successfully raised prices.


The Chart Seminar June 6th & 7th in London

Now in its 53rd year, the first venue for The Chart Seminar in the post pandemic era will be in London on June 6th and 7th at the Army & Navy Club.
To reserve your place please contact Sarah@fullertreacymoney.com.

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Each additional delegate: £850

Fuller Treacy Money Subscriber rate: £850

Prices exclude VAT where applicable


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