Major Buyers Shun Russian Crude Oil

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In his Daily Market Notes report to investors, while commenting on the Russian crude oil, Louis Navellier wrote:

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Russian Crude Oil Struggles To Find Buyers

President Biden during the State of the Union speech addressed the supply chain bottlenecks as one of the reasons that inflation has surged.  Specifically, Biden was very critical of the lack of competition among ocean shipping companies and essentially blamed the industry for the higher cost of goods.  Naturally, all the shipping companies are foreign chartered due to U.S. liability laws, so there is little the U.S. can do to boost shipping competition.

Crude oil prices futures rose above $111 per barrel this week on the news that 70% of Russian crude oil was “struggling to find buyers” according to Energy Aspects as major buyers shunned Russian crude oil.  President Biden during The State of the Union Speech said the U.S. and 30 other countries are releasing 60 million barrels of crude oil.  Biden added that “we stand ready to do more if necessary, united with our allies.”

I was disappointed that President Biden did not call for boosting domestic energy production and making the U.S. energy independent again.  Fortunately, higher energy prices are naturally helping to boost domestic production as North Dakota and older shale fields come online to boost domestic production.  I expect that domestic energy production will be a major mid-term election issue and there will be a major leadership shift in Congress, since the prices at the pump have infuriated most Americans.

Cautious Fed

The Fed’s favorite inflation indicator, namely the Personal Consumption Expenditure (PCE) index is now running at an annual rate of 6.1%.  The core PCE, excluding food and energy, is now running at a 5.2% annual pace.  The increase in the PCE has triggered many economists to call for even more key interest rate increases by the Fed.  However, I am expecting that the Fed will become more cautious and increase key interest rates more slowly, due partially to the fact that the European Central Bank (ECB) will not be increasing its interest rates due to the recession risk from the Ukrainian/Russian conflict.

The European Union’s statistics agency on Wednesday announced that inflation in the eurozone is now running at a 5.8% annual pace through February.  Further inflation increases are expected due to higher energy prices and supply chain glitches, since some European companies, like VW Group, rely on Ukraine for wiring harnesses and other key vehicle parts.  Regardless of surging inflationary pressure, again I do not expect that the ECB will raise key interest rates from 0%, due to the imminent recession risk.

Market rates around the world continue to plunge due to a flight to quality from the Ukrainian/Russian conflict.  As I have repeatedly said, the Fed never fights market rates.  Fed Chairman Jerome Powell is testifying before Congress the House Financial Services Committee today where he will be drilled about inflation.  Naturally, all eyes and ears will be on the Fed Chairman for any hints on the Fed’s interest rate policy.  If Chairman Powell telegraphs that the Fed will be more cautious raising key interest rates, I expect that he could trigger a big stock market rally.

The Institute for Supply Management (ISM) on Tuesday announced that its manufacturing index rose to 58.6 in February.  The new orders component was especially impressive and increased to 61.7 in February, while the production component rose to 58.5 in February.  Especially impressive was the backlog of orders component rose to 65 in February and the new orders component that increased to 57.1 in February.  Fully 16 of the 17 industries that ISM surveyed in February reported growth, so the manufacturing sector remains healthy and has a good order backlog that should ensure steady growth in the upcoming months.

Coffee Beans

China was the single-biggest foreign holder of Russian central bank reserves as of June 30, 2021. 13.8 percent of the total of Russia’s reserves, held in gold and foreign currency, was located in China. The biggest share of reserves was that held in Russia itself – in the form of gold, making up 21.7 percent of reserves. With the sanctions against its central bank progressing, this means Russia would likely remain in charge of around one-third of its current $630 billion strong reserves through domestic gold and Chinese Yuan. Source: Statista. See the full story here.