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"Energy Supply Chain Breakdown Triggers Panic
Buying And Leads To Massive Shortages"
by Epic Economist
"The catastrophic shortage of energy supplies has thrown the commodity market into complete chaos as several nations started to rush to hoard diesel and gasoline amid dwindling inventories and surging prices. On the consumer level, drivers have also been panic buying as fears of fuel rationing continue to rise.
The shortfall of critical energy supplies is having serious impacts on food production as well as on the delivery of goods across the country and even on domestic airport operations. The global supply chain stress is only getting worse, and industry insiders are warning that the stage is set for an economic slowdown and a following recession in the United States as fuel price hikes push inflation to extreme levels.
The Russia and Ukraine crisis is threatening to collapse the global supply of key energy commodities, especially gasoline and diesel. The world was already struggling with an energy shortage before the conflict began in February, but now the situation has gotten much more alarming than expected.
As the price of many leading commodities – from wheat to vegetable oils, and crude to distillate fuels – continues to skyrocket, resulting in multi-decade high inflation rates in several nations, the energy supply crunch is laying the groundwork for rationing, not only of fuels but of food, as production and deliveries get compromised.
Fuel prices will remain volatile as the conflict escalates. In every corner of the global economy, energy supply shortages are aggravating, but experts are warning that what’s going on in gasoline markets is nothing compared to the looming diesel shortage. “The systemic shortfall of diesel is already there,” cautioned Russell Hardy, CEO of energy trading company Vitol. Executives sounded the alarm about extreme conditions caused by that shortage, which is likely to result in a deep decline in global supplies for the rest of the year, requiring widespread fuel rationing.
For a truck that needs 125 gallons or more to be filled, that accounts for several hundred dollars extra at every filling and is leading to higher costs for anyone who buys anything that gets shipped, from food to home goods to electronics and cars. “Diesel is used in farming. It’s used in a lot of industrial processes. All the machinery runs on diesel. A lot of construction runs on diesel,” noted Francisco Blanch, global head of commodities and derivatives research at Bank of America. “I think it’s very problematic. Trucks run on diesel, trains run on diesel, and planes run on jet fuel which is also diesel. It does impact the backbone of everything we do, whether it’s moving things around the world or harvesting or producing anything in a factory. Almost every human activity has some element of diesel consumption,” Blanch said.
To make things worse, the amount of diesel in storage in the U.S. is at an unusually low level. “Diesel stocks have declined for the past year and a half and are down by nearly 70 million barrels, to the lowest level since 2014,” he exposed. Inventories are 20% below the pre-health crisis levels. “Right now the shortage is in diesel, and reserves are down to the ground,” the expert added. “And that could move to gasoline because everyone is going to be maximizing diesel runs.”
In view of all of these disruptions to the global energy supply chains, the Schork Group principal Stephen Schork warned on Thursday that gas prices will explode and create "very ugly" inflation. He also said that a recession is "unavoidable at this point. Every single recession in the United States, beginning with the Arab oil embargo in 1974, was preceded by a massive rise in energy costs," Schork argued. "We have never seen a massive rise like we’re seeing today, so be prepared for it," he stressed.
The pressure on energy supply chains is expected to grow, and shortages aren’t going to be resolved any time soon. We must brace for a lot more turbulence in the weeks and months ahead because global and domestic economic trends continue to deteriorate further with each passing day."
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