Lets

 

just cut out all the noise and get right to the heart of the matter.

A potential economic recession and the supply chain bullwhip are colliding

(Oh its not "potential")

"As we look at the pandemic through the rearview mirror, the economy is shifting to a new phase. While the United States is currently experiencing full employment, American consumers are incredibly stressed about the state of the economy and personal financial security. Inflation, crashing stock markets, higher interest rates, and economic uncertainty are sapping any confidence that full employment should offer."

(True unemployment figures are closer to 24%, lisep.org)

"The bullwhip effect

The ‘bullwhip effect’ is a term used in supply chain circles to describe a scenario in which temporary surges in retail demand are magnified and exaggerated by upstream manufacturers and suppliers, who rapidly increase production well beyond the level that can be supported by consumers. Eventually, retailers find themselves with more inventory than they can sell, and what started as a goods shortage ends up as a goods surplus."

(We are already there:

)

"But on February 24, 2022, the world completely changed. Russia invaded Ukraine. Energy and food prices surged in response, setting off inflation rates that the Western world had not seen since the early 1980s."

"As inflation continued to accelerate into the spring, consumers pulled back spending on the very items they had previously consumed in excess. Retailers found themselves with even larger levels of inventories than previously forecasted and were forced to come clean in earnings reports and subsequent public announcements."

"Walmart was the first major Big Box retailer to report having too much inventory. Target was the second. The two Big Box retailers also happen to be the two biggest importers of containerized freight into the United States. Between them, they imported nearly 1.7 million TEUs in 2021, representing nearly 7% of all U.S. container imports."

Diesel powers the industrial economy. Freight, farming, and construction all depend on diesel. As the price of diesel surges, it hurts the cash flow of companies across the economy and makes the Federal Reserve’s job harder in tamping down inflation. 

"Fuel is still a major factor for anyone involved in freight movement. Diesel continues to surge higher and is within spitting distance of $6.00 on a national level ($5.85/gallon)."

"July and August are always slower markets for freight – the so-called ‘summer doldrums.’ The conditions we currently see suggest that carriers should brace for even weaker conditions than normal. The Atlanta Fed’s high-frequency GDP tracker indicates the U.S. economy is already in a recession." 

"For the freight markets and supply chains, it couldn’t come at a worse time."

(Your creator is trying to tell you something) 

That was from:

Craig Fuller, CEO at FreightWaves

Craig Fuller is CEO and Founder of FreightWaves, the only freight-focused organization that delivers a complete and comprehensive view of the freight and logistics market. FreightWaves’ news, content, market data, insights, analytics, innovative engagement and risk management tools are unprecedented and unmatched in the industry. Prior to founding FreightWaves, Fuller was the founder and CEO of TransCard, a fleet payment processor that was sold to US Bank. He also is a trucking industry veteran, having founded and managed the Xpress Direct division of US Xpress Enterprises, the largest provider of on-demand trucking services in North America.

I'd go with what he says over others...yup...

AND?

Can The Global Gasoline And Diesel Crisis Be Solved?

"Diesel and gasoline markets are witnessing crack spreads in the $50-$60 per barrel range due to inventory stocks across the world being at record lows.

"The global oil demand recovery looks resilient as the final Covid-related restrictions are being removed around the world."

"Refining capacity in both Europe and the U.S. has fallen dramatically in the last decade, making the replacement of low inventories particularly difficult."

"Global diesel and gasoline markets are witnessing blowout crack spreads in the US$50-60 per barrel (bbl) range, reflecting a clear lag in the refining system to respond effectively and decide between supplying diesel or gasoline. The precarious situation is driven by inventory stocks across the globe being at their lowest levels historically and, therefore, unable to provide the necessary shock absorbers. The loss of Russian refining owing to operational outages and product containment challenges has caused a diesel/gasoline hole greater than 1 million barrels per day (bpd) in Europe that is not easy to plug, Rystad Energy research shows."

“Diesel is the lifeblood of the global economy, essential to vital sectors such as agriculture, construction, and transportation – its price impacts almost all supply chains and goods. Governments face tough decisions. They can assist consumers by dropping taxes on diesel, but this will likely only increase demand, which may support the overall economy but will worsen the existing tight supply situation. If supply does not improve, governments will be forced to enact emergency plans to limit sales to consumers in order to ensure essential sectors are kept going,” says Per Magnus Nysveen, Head of Analysis at Rystad Energy.

(Rationing is coming)

"On the supply side, Russia’s invasion of Ukraine has disrupted product flows and crude flows to the European market at a time when the rest of the world has limited ways in which to respond."

(That was kinda their point)

"The loss of crude supply has hindered the shrinking European refining sector’s ability to run at high utilization rates and has accelerated a downward trend in Europe which has lost 2 million bpd of crude refining since peak capacity of 17.5 million bpd in 2005. The US has been following a similar trend, losing between 1 million and 1.5 million bpd of refining capacity in the last 3-4 years."

"Thus, a constrained refining system as demand has recovered has resulted in precariously lower days of supply cover in most countries. Many have mandated higher days of stock cover making it hard to solve regional product imbalances with trade flows."

"To meet rising demand, refining runs will need to increase by 4.6 million bpd from June to August 2022, compared to current projections of 3.3 million bpd.'

"Given the above indicators, Rystad Energy believes that gasoline’s slight contraction this week is only temporary and further upward movement can be expected. US gasoline stock levels continue their downward trend, from 246 million barrels at the beginning of Russia’s invasion of Ukraine to 217 million barrels presently."

"Potential pathways out of this

Higher crude supply of the right medium-sour quality to maximize bottom-of-barrel upgradation would make a significant difference. The US government’s release of 45 million additional barrels of predominantly light sweet crude is a positive signal. OPEC is falling behind on its targets but the upcoming visit of US President Biden to Saudi Arabia is a key signpost to watch. Asian/Chinese and Middle Eastern refining runs in excess of domestic demand will offer some respite to plug shortages in the US and the EU. Overall, the global runs base outlook is likely to lag below demand-driven runs. The loss of Russian refining and product exports is not going to be plugged easily by the rest of the world. High diesel prices will drive hyperinflation globally and point towards a possible contraction in GDP. Demand destruction may lead to a recession and restore balance, but this will be a painful experience for consumers. Regardless, gasoline and diesel cracks are expected to continue to stay strong during the northern hemisphere’s summer. Many will be hoping for a moderate correction from August and September 2022 onwards, but a lot rests on how sanctions on Russia take effect towards year-end.

Refining is currently resembling a deflated bike tire without a pump – squeezing one side to make more diesel or jet fuel will cause the gasoline supply to worsen and vice-versa. For operating refineries, it is a bonanza, generating fantastic profits. No wonder then that US President Biden has issued a call that refinery profits well above normal are unacceptable and that refineries need to do more to ease supply."