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De-Globalization in Pictures: Expect More Inflation in Oil and Natural Gas

Globalization provided four decades of deflationary pressure. We are now headed in reverse.
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Natural Gas futures image from Tweet below.

Natural Gas futures image from Tweet below.

"Incredible to see on a chart exactly what happened to natural gas prices in both Europe and the United States at the exact moment that it was announced that a US export terminal would take longer to come back online than previously expected."

What's Going On?

There was an explosion at the Freeport natural gas facility on June 8. Price of natural gas fell in the US and rose in Europe. 

Prices fell in the US because Freeport is a Liquid Natural Gas (LNG) facility. It produces LNG to exports.

In a Press Wire today Freeport announced "completion of all necessary repairs and a return to full plant operations is not expected until late 2022." 

That's good news for US consumers and bad news for Europe.

18 Percent Decline in One Day

US Natural Gas Price June 14 chart courtesy of Trading Economics, annotations by Mish

US Natural Gas Price June 14 chart courtesy of Trading Economics, annotations by Mish

Spotlight on Sanctions

"Sanctions on Russia has left equipment key for the functioning of the Nord Stream gas pipeline stuck abroad, signaling shipments via the crucial route to Germany may be curbed for some time."

What About Compressors? 

As a result of sanctions and inability to get parts, guess what?

No Parts, No Gas

France Largest LNG Buyer in the World

"As the #EU is considering stricter sanctions against #Russia, #France has increased its imports to become the largest buyer of LNG in the world"

Macron's Savy? Really? 

I keep returning to the following picture. 

Global map from Nations Online Project, annotations by Mish

Global map from Nations Online Project, annotations by Mish

Instead of getting natural gas from hundreds of miles away over existing pipelines we compress natural gas in the US then ship it 4,700 miles away Europe. 

Meanwhile, Russia fearing eventual European cutoff is building new pipelines to China. 

De-globalization to punish Russia and China is seriously impacting global supply chains. Prices are rising everywhere. 

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Worst of all, with the increased energy prices, Russia is making as much money as before selling less gas and oil.

Russian Ruble 

Russian Ruble chart courtesy of Trading Economics

Russian Ruble chart courtesy of Trading Economics

Note: Hanke inverted the chart so that up, not down means strengthening.

Biden Bragging About the Ruble

"As a result of our unprecedented sanctions, the ruble was almost immediately reduced to rubble."

That bragging lasted a few days. A down move in the Ruble chart is appreciation.

Shortly after the war started, it took 132 rubles to buy a dollar. After all the sanctions kicked in, and the price of energy soared, the Ruble soared as well.

Now it only takes 56 rubles to buy a dollar. Since March, the Ruble became the strongest currency in the world vs the US dollar. 

Policy Responses 

Refusal to buy oil and Gas from Russia is economic madness. And it's even helping Russia finance the war.

Meanwhile, supply chain disruptions and de-globalization are driving prices up everywhere. 

De-globalization is underway. A key ramification is higher inflation.

For further discussion, please see De-Globalization: New Supply Chains Are Inefficient and Will Drive Up Inflation

We have economic illiterates running the country and running the Fed. The average Joe is getting killed.

Dear President Biden, the above charts speak for themselves. If you want to lower inflation, stop the sanctions. 

 This post originated on MishTalk.Com.

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