Energy | timiacono.com

Wither Russia? Oo-Yeh!

John McCain’s quip that Russia is “a gas station masquerading as a country” appears to be more true every day as a failed attempt to prop up the ruble with a rate hike from 10.5 percent to 17 percent is now seen by FOREX markets as sign of desperation rather than strength, leading to more selling of the ruble as the oil price continues to move lower.

This Washington Post story put the two side-by-side as shown below (does anyone care about Ukraine anymore?) as they detailed how doomed the Russian economy is.

According to this Moscow Times report, the Russian people may already be adapting to the new currency realities – as they did in the 1990s – via the reintroduction of:

the u.e. — which stands for the Russian words “uslovnaya yedinitsa,” or “conditional unit” and is pronounced “oo-yeh”

This is a currency unit pegged to the dollar aimed at keeping retailers from having to replace price tags on a daily (if not hourly) basis. About the only thing that seems certain at this point is that this will probably get worse before it gets better.

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Awash in (Expensive) Oil

WTI crude oil is rebounding this morning and the price for one barrel of the stuff now sits at a little over $66 dollars, a number that somehow seems equally odd and menacing.

The financial media is replete with stories of impending doom with the consensus being that marginal supplier Saudi Arabia has taken aim at johnny-come-lately marginal supplier U.S. shale, shown in green below via this offering from Prof. James Hamilton at Econbrowser.

Between Canada’s oil sands production and the boom in U.S. shale oil, North America has foisted upon the world a lot of dear oil and, now, OPEC appears to have seen enough of it.

Obviously, the solution here is for Wall Street and the Fed to provide even more cheap money in order to facilitate even bigger negative cash flows in the shale oil patch that will go on in perpetuity – let’s see how the Saudis like that.

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Last week, retail gasoline prices were higher than a year ago for the first time since February and, with another penny increase to $3.66 per gallon as reported by the Energy Department the other day, they are now up 8 cents (or over 2 percent) on a year over year basis.

Given that prices continued to decline at this time last year as shown below, there will be some positive inputs to the inflation calculation in the months ahead.

How big an impact this will have remains to be seen since, like most of the natural resource sector, the energy market hasn’t been particularly strong this year.

Just maintaining current pump prices over the summer will result in a year-over-year increase of almost 10 percent come July, but this will quickly vanish in the months that follow as gasoline prices recovered quickly from their summer swoon last year.

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If You Dig It, They Will Pay

A long-term look at commodity prices from this item at The Economist shows big price gains are more often found for goods that must be dug out of the ground rather than grown.

Global population growth has slowed in recent years and technological advances have boosted crop production, mitigating many of the fears from decades ago that the world wouldn’t be able to feed itself. For more on population growth, see this item at Wikipedia:

The world population has experienced continuous growth since the end of the Great Famine and the Black Death in 1350, when it stood at around 370 million.[6] The highest rates of growth – global population increases above 1.8% per year – were seen briefly during the 1950s, and for a longer period during the 1960s and 1970s. The growth rate peaked at 2.2% in 1963, and had declined to 1.1% by 2011.

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