Why nothing's being shipped, and why the fallout will be way way wi-i-i-i-ider than you think

The Baltic Dry Index (replaces the Baltic Freight Index). A composite of the Baltic Capesize, Panamax, Handysize and Supramax indices. The index is designed as the successor to the Baltic Freight Index and was first published on 1 November 1999.

Original charts etc from Wikipedia

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Speccies call crude DOWN

Futures gone net short overnight for the first time since around the start of last year. Commodities trading mate of mine told me a couple of weeks ago that he wouldn't short at $130/bbl, but would at $120/bbl... which isn't too far off at the moment (Nigeria, Iran etc willing.)

That said, the futures players have not been the best longer (or even medium) term indicators of the direction of oil prices over the last 5 (or 10) years.




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$130 oil? Try $30/bbl...

For those who think this time it's different (actually it is, isn't it? Errmmm...) check out this item from Credit Suisse global strategist Jonathan Wilmot, entitled "How Much Demand Destruction" in which he says that oil prices are and remain very sensitive to global economic growth and given inflationary concerns (and central bank cred, what's left of it) we're pretty close to a tipping point... and oil prices could well get to the $30 range.

Here are his front page bullet points (my emphasis):

How Much Demand Destruction?

• Most of the emerging world has a genuine inflation problem while most of the developed world has a rapidly escalating income, profits and credit problem that points to recession or worse.
• But two decades of hard won credibility for G10 central banks is at stake, so they cannot completely ignore the simultaneous shock to inflation expectations.
• Current and near-term global oil supplies are severely constrained: stabilising or reducing oil prices thus seem to require accelerated demand destruction in the OECD.
• By implication, the world’s major central banks may have little choice but to quietly allow the developing recession to unfold, while using other policies to limit damage to the financial system.
• That is essentially what market price action over the last month or so has been telling us, and might even be seen as the real sub-text of Bernanke’s testimony.
• This makes it all the more important to understand what combination of slower global growth and high energy prices will bring global oil demand to a halt. Our analysis suggests we are close to a tipping point towards much lower oil demand, and price.

If you can access CS research, please do so (or you can always ask me.) Otherwise, it's all Wordled here:

“Bertha, I urge you to get a balance sheet... and get somebody to explain it to you…”

“...if you think this is because of short sellers... you need to get a new job...”

Thanks, iBankCoin!

Asia - flattened by an Un-Flattening World

Excellent note from MS last night entitled HIGH TRANSPORT COSTS TO 'UN-FLATTEN' THE WORLD in which their economists note, in a glass-half-full sort of way, that with high oil prices driving transportation costs through the roof and the Asian export model under serious threat as a result, the development of domestic and regional consumption is a positive.

"We believe that, with rising transport costs, trade globalisation may slow significantly and the world will 'become more round'. Asia's trade model will be particularly affected. The near-term impact, in our view, is not positive for Asia; however, in the long run, this shock could coerce Asia into moving away from the export-led growth model."

(Maybe India rather than China has it right after all? Just a thought!)

The FT writes this morning, coincidentally, of P&G's rethinking of its supply network in the light of massively higher transport prices:

"Soaring energy prices are forcing Procter & Gamble to rethink how it distributes its products, with the world’s biggest consumer goods company shifting manufacturing sites closer to consumers to cut its transport bill."

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I wrote about the effect of transport costs on Asia recently here and here, but obviously didn't think it through quite as far as MS (and P&G)!

ENOUGH whining from US consumers about pump prices, please

Gasoline prices in US$/(US)gallon terms around the world: we're looking at the US at US$4.06 at the pump, 30% lower than the simple average of the 67 countries listed at US$5.74. (Source.)

That ranks the US at the 22nd cheapest in the world, cheaper than every country in Asia barring Pakistan and most of the the O&G producers (Malaysia, China, Indonesia and Brunei) and every single country in Europe including the o&g producers such as the UK, at 58th, and Norway - at 66th only cheaper than dysfunctional outlier Sierra Leone.


Only 9 countries are priced within 10% of the average, while seven countries are still priced at under a buck a gallon - half to keep their populations happy, half just to p1ss off the Americans.

The Price of Oil

Some high value added from CNBC today, in pix...

How Crude Stacks Up
"You're in for a surprise if you think crude oil is expensive at today's levels of about $130+ a barrel... a Starbucks latte actually costs much more at $954 a barrel. Here's how oil really stacks up compared to the cost of some of our favorite items."

But how big IS a barrel of crude? 42 US gallons/ 35 Imperial gallons / 159 litres (and comprised of this stuff.)

And how much is that? About 80 large plastic bottles of Coke (...or simply lashings of ginger ale.)