Current Affairs
September 12, 2022
Potential Rail Strike
US Railroads Enact “Contingency Plans,” Preparing For Labor Strike As Union Talks Fail
by Tyler Durden
Monday, Sep 12, 2022 – 08:45 AM
Railroads and labor unions worked through the weekend to make a deal. There were little signs of progress, and rail companies are now taking steps Monday to secure shipments of hazardous and security-sensitive materials “in light of the possibility of a rail labor strike,” the Association of American Railroads (AAR) wrote in a statement.
On Sunday, Norfolk Southern released a statement detailing it had “begun enacting its contingency plans for a controlled shut down of our network at 00:01 on Friday, Sept. 16.” The railroad said two labor unions are holding out on new contracts, “we still do not have a commitment not to strike and must act accordingly,” adding, “Our goal is to ensure that in the event of a work stoppage, crews, equipment, and freight safely reach their destinations with minimal disruption.”
Union Pacific and CSX also announced contingency plans for a possible work stoppage. BNSF told customers to call Congress so lawmakers on Capitol Hill can “intervene to prevent or quickly resolve the service disruption” if a labor strike materializes on Friday. The railroad also said: “We will begin to take steps to manage and secure the shipments of hazardous and security-sensitive materials as early as Monday.”
Rail freight networks are the arteries of the US economy.
Two months ago, the Biden administration imposed a two-month cooling-off period is set to expire at 12:01 am ET on Sept. 16 — after that — President Biden didn’t have the power to prevent a strike among two labor unions that had yet hammered out a deal with railroads. Only Congress can intervene after the cooling period expires.
Bloomberg said the two unions include the Brotherhood of Locomotive Engineers and Trainmen and the International Association of Sheet Metal Air, Rail and Transportation Workers, accounting for more than 90,000 rail employees. Ten of the other unions have already struck a deal with railroads.
Association of American Railroads warned that a railroad strike could cost the US economy upwards of $2 billion per day, while disruption wouldn’t be good optics for the Biden administration ahead of the midterm elections in November.
Bloomberg Intelligence analyst Lee Klaskow pointed out that BNSF and Union Pacific account for 45% of Class I intermodal traffic, while CSX and Norfolk Southern has 31%.
According to government data, about 29% of all US freight moves on the rails. Half the cargo is bulk commodities, such as energy, food, chemicals, metals, and wood productions — the other half is shipping containers of consumer goods.
“Even a temporary interruption would create a devastating ripple effect” across US supply chains, American Bakers Association, a Washington-based trade group representing more than 300 companies, warned.
Even if there’s no strike, rail networks are already clogged. Shipping line Maersk recently suspended import bookings through Fort Worth, Texas, due to “severe congestion” in railyards.
Railroads are preparing for possible work stoppages at the end of the week if the two unions can’t formulate a deal. There’s the possibility Congress could intervene before the cooling period expires. If not, then expect a flare-up in snarled supply chains.
September 9, 2022
Quiet First Half of Hurricane Season
Quiet Start To US Hurricane Season Takes Heat Out Of Oil Prices: Kemp
by Tyler DurdenFriday, Sep 09, 2022 – 12:10 PM
By John Kemp, Senior Market Analyst at Reuters
The Atlantic hurricane season is nearing its halfway point and so far no hurricanes have made landfall on the coast of the United States, contributing to the recent downward pressure on oil and fuel prices.
The Atlantic season lasts from June 1 to Nov. 30, with half of the storms usually occurring before Sept. 12, based on records compiled by the U.S. National Oceanic and Atmospheric Administration (NOAA).
On average, four hurricanes made landfall somewhere on the Atlantic or Gulf Coasts of the United States by Sept. 12 each year between 1851 and 2021 (“Hurricane database”, HURDAT2, NOAA).
But this year the start of the hurricane season has been the quietest for 25 years. There were no Atlantic hurricanes in the month of August for the first time since 1997 and only the third time since 1950 (“Quiet start to hurricane season“, Wall Street Journal, Sept. 7).
No hurricanes have made landfall on the Atlantic or Gulf Coasts so far in 2022, ensuring crude and fuel production has continued uninterrupted and helping ease concerns about the low level of inventories.
Hurricanes tracking through the oilfields of the western Gulf or making landfall near the refining centres of Texas and Louisiana have the potential to interrupt offshore crude production and onshore gasoline and diesel refining. Severe storms in these areas often create a short-term spike in crude and fuel prices and traders anticipate potential moves by bidding up futures contracts for deliveries in September and October.
In May, NOAA forecast this year would see an above-average number of hurricanes and tropical storms, based in part on La Niña conditions in the Pacific (“NOAA predicts above-normal Atlantic hurricane season”, May 24). The agency reiterated this forecast as recently as the start of August (“NOAA still expects above-normal Atlantic hurricane season”, Aug. 4).
The possibility of hurricanes disrupting oilfield output or gasoline and diesel refining was especially worrisome given sanctions on Russia’s oil and diesel exports and the low level of oil inventories especially diesel stocks.
Hurricane risk likely contributed to rapidly rising prices for crude and abnormally high refining margins for gasoline and especially diesel through the end of July.
But the forecast storms have not materialized.
Falling Prices
Half the hurricane season still lies ahead so there is plenty of time for significant damage to offshore platforms and onshore refineries. In statistical terms, however, the risk is now much lower than it seemed between June and early August, which has likely taken some of the heat out of crude and fuel prices.
Prices for gasoline, in particular, have been falling much faster than for crude in recent weeks as the risks to the refining system have dropped.
Gasoline pump prices, including taxes, were at a premium of $1.58 per gallon ($66 per barrel) to Brent crude on Sept. 5 compared with $2.35 per gallon ($99 per barrel) in the middle of June.
The gasoline premium has fallen close to its lowest levels since Russia invaded Ukraine in late February and is broadly similar to the premium a year ago, as some hurricane risk has evaporated. Premiums have narrowed even though gasoline inventories at the end of August were 14 million barrels (6%) below the pre-pandemic five-year average for 2015-2019.
Diesel prices have remained firmer, in part because inventories remain much lower and manufacturing and freight activity has proved more resilient than expected a couple of months ago.
Distillate fuel oil inventories near the end of August were 32 million barrels (22%) below the pre-pandemic five-year seasonal average.
As a result, on-road diesel prices were at a premium of $2.80 per gallon ($118 per barrel) to Brent on Sept. 5 which was little changed from $3.10 per gallon ($130 per barrel) in the middle of June.
But it is likely that diesel prices would have moved even higher if the hurricane season had been much more active so far.
The quiet start to the season has removed one source of production risk while high prices and a slowing economy have started to dampen consumption.
The combined impact has been a significant reduction in the risk of fuel shortages with prices retreating from their mid-year highs.
https://www.zerohedge.com/commodities/quiet-start-us-hurricane-season-takes-heat-out-oil-prices-kemp
September 9, 2022
Quiet First Half of Hurricane Season
Quiet Start To US Hurricane Season Takes Heat Out Of Oil Prices: Kemp
by Tyler DurdenFriday, Sep 09, 2022 – 12:10 PM
By John Kemp, Senior Market Analyst at Reuters
The Atlantic hurricane season is nearing its halfway point and so far no hurricanes have made landfall on the coast of the United States, contributing to the recent downward pressure on oil and fuel prices.
The Atlantic season lasts from June 1 to Nov. 30, with half of the storms usually occurring before Sept. 12, based on records compiled by the U.S. National Oceanic and Atmospheric Administration (NOAA).
On average, four hurricanes made landfall somewhere on the Atlantic or Gulf Coasts of the United States by Sept. 12 each year between 1851 and 2021 (“Hurricane database”, HURDAT2, NOAA).
But this year the start of the hurricane season has been the quietest for 25 years. There were no Atlantic hurricanes in the month of August for the first time since 1997 and only the third time since 1950 (“Quiet start to hurricane season“, Wall Street Journal, Sept. 7).
No hurricanes have made landfall on the Atlantic or Gulf Coasts so far in 2022, ensuring crude and fuel production has continued uninterrupted and helping ease concerns about the low level of inventories.
Hurricanes tracking through the oilfields of the western Gulf or making landfall near the refining centres of Texas and Louisiana have the potential to interrupt offshore crude production and onshore gasoline and diesel refining. Severe storms in these areas often create a short-term spike in crude and fuel prices and traders anticipate potential moves by bidding up futures contracts for deliveries in September and October.
In May, NOAA forecast this year would see an above-average number of hurricanes and tropical storms, based in part on La Niña conditions in the Pacific (“NOAA predicts above-normal Atlantic hurricane season”, May 24). The agency reiterated this forecast as recently as the start of August (“NOAA still expects above-normal Atlantic hurricane season”, Aug. 4).
The possibility of hurricanes disrupting oilfield output or gasoline and diesel refining was especially worrisome given sanctions on Russia’s oil and diesel exports and the low level of oil inventories especially diesel stocks.
Hurricane risk likely contributed to rapidly rising prices for crude and abnormally high refining margins for gasoline and especially diesel through the end of July.
But the forecast storms have not materialized.
Falling Prices
Half the hurricane season still lies ahead so there is plenty of time for significant damage to offshore platforms and onshore refineries. In statistical terms, however, the risk is now much lower than it seemed between June and early August, which has likely taken some of the heat out of crude and fuel prices.
Prices for gasoline, in particular, have been falling much faster than for crude in recent weeks as the risks to the refining system have dropped.
Gasoline pump prices, including taxes, were at a premium of $1.58 per gallon ($66 per barrel) to Brent crude on Sept. 5 compared with $2.35 per gallon ($99 per barrel) in the middle of June.
The gasoline premium has fallen close to its lowest levels since Russia invaded Ukraine in late February and is broadly similar to the premium a year ago, as some hurricane risk has evaporated. Premiums have narrowed even though gasoline inventories at the end of August were 14 million barrels (6%) below the pre-pandemic five-year average for 2015-2019.
Diesel prices have remained firmer, in part because inventories remain much lower and manufacturing and freight activity has proved more resilient than expected a couple of months ago.
Distillate fuel oil inventories near the end of August were 32 million barrels (22%) below the pre-pandemic five-year seasonal average.
As a result, on-road diesel prices were at a premium of $2.80 per gallon ($118 per barrel) to Brent on Sept. 5 which was little changed from $3.10 per gallon ($130 per barrel) in the middle of June.
But it is likely that diesel prices would have moved even higher if the hurricane season had been much more active so far.
The quiet start to the season has removed one source of production risk while high prices and a slowing economy have started to dampen consumption.
The combined impact has been a significant reduction in the risk of fuel shortages with prices retreating from their mid-year highs.
https://www.zerohedge.com/commodities/quiet-start-us-hurricane-season-takes-heat-out-oil-prices-kemp
September 9, 2022
German Support
“Wide Rescue Umbrella”: Germany Plans To Support Companies As Energy Crisis Worsens
by Tyler DurdenFriday, Sep 09, 2022 – 05:45 AM
Natural gas and electricity prices have become so expensive in Germany that the economic engine of Europe is shutting down and at risk of a ‘Lehman-style’ collapse. To mitigate energy cost burdens, the German government unveiled a new proposal to increase a pandemic-era rescue fund to save small and medium size companies that could face a wave of bankruptcies amid the worsening energy crisis.
On Thursday, Bloomberg quoted German Economy Minister Robert Habeck as saying new financial aid for businesses to cover energy costs could soon be made possible.
“We will open a wide rescue umbrella,” Habeck told lawmakers in Berlin. “We will open it widely so that small and medium enterprises can come under it,” he said.
Habeck’s comments come after German Chancellor Olaf Scholz’s coalition agreed on a 65 billion euro program to support millions of struggling households with soaring power bills.
A participant at a parliamentary committee late Wednesday said Habeck was willing to use an existing pandemic-era aid program to support companies — about 20% of the 5 billion euros has already been spent.
Habeck said at the closed-door meeting that drawing funds from the Covid program could spark constitutional debt limit issues, according to the participant, who asked not to be named.
In his speech to lawmakers, Habeck said the energy crisis could persist well beyond this winter, adding financial support for businesses will be temporary as Germany and the EU work to reform energy supply chains away from Russia.
“We are looking at the electricity market design,” said Habeck. “If this doesn’t work immediately and solidly, then we also consider the option of a windfall levy and give this back to the citizens.”
Besides Germany, UK Prime Minister Liz Truss also laid out a plan to support households and businesses amid energy hyperinflation as Russia’s energy giant shuttered the Nord Stream 1 pipeline to Europe last week.
European politicians are maneuvering ahead of a pivot meeting Friday, where they will discuss plans to reduce energy costs, consumption, possible price caps on energy products, and even suspension of power derivatives trading — as the bloc races against time to thwart what could be a ‘Minsky’ moment as we reported European energy trading risks grinding to a halt unless governments extend liquidity to cover margin calls of at least $1.5 trillion.
September 9, 2022
German Support
“Wide Rescue Umbrella”: Germany Plans To Support Companies As Energy Crisis Worsens
by Tyler DurdenFriday, Sep 09, 2022 – 05:45 AM
Natural gas and electricity prices have become so expensive in Germany that the economic engine of Europe is shutting down and at risk of a ‘Lehman-style’ collapse. To mitigate energy cost burdens, the German government unveiled a new proposal to increase a pandemic-era rescue fund to save small and medium size companies that could face a wave of bankruptcies amid the worsening energy crisis.
On Thursday, Bloomberg quoted German Economy Minister Robert Habeck as saying new financial aid for businesses to cover energy costs could soon be made possible.
“We will open a wide rescue umbrella,” Habeck told lawmakers in Berlin. “We will open it widely so that small and medium enterprises can come under it,” he said.
Habeck’s comments come after German Chancellor Olaf Scholz’s coalition agreed on a 65 billion euro program to support millions of struggling households with soaring power bills.
A participant at a parliamentary committee late Wednesday said Habeck was willing to use an existing pandemic-era aid program to support companies — about 20% of the 5 billion euros has already been spent.
Habeck said at the closed-door meeting that drawing funds from the Covid program could spark constitutional debt limit issues, according to the participant, who asked not to be named.
In his speech to lawmakers, Habeck said the energy crisis could persist well beyond this winter, adding financial support for businesses will be temporary as Germany and the EU work to reform energy supply chains away from Russia.
“We are looking at the electricity market design,” said Habeck. “If this doesn’t work immediately and solidly, then we also consider the option of a windfall levy and give this back to the citizens.”
Besides Germany, UK Prime Minister Liz Truss also laid out a plan to support households and businesses amid energy hyperinflation as Russia’s energy giant shuttered the Nord Stream 1 pipeline to Europe last week.
European politicians are maneuvering ahead of a pivot meeting Friday, where they will discuss plans to reduce energy costs, consumption, possible price caps on energy products, and even suspension of power derivatives trading — as the bloc races against time to thwart what could be a ‘Minsky’ moment as we reported European energy trading risks grinding to a halt unless governments extend liquidity to cover margin calls of at least $1.5 trillion.
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