Inflation Firms, Consumer Spending Jumps The personal-consumption expenditures index rose at a faster 5.4% rate last month and consumer spending climbed 1.8%, which could prompt the Fed to raise rates higher than previously anticipated this year.

(…) U.S. consumers’ spending jumped a seasonally adjusted 1.8% in January from the prior month, the largest increase in nearly two years, as they shelled out for goods such as refrigerators and cars and spent more at restaurants and hotels. (…)

The January spending boom, a reversal from a small spending decline in December, was driven in part by a strong increase in household income, the Commerce report showed.

Wages and salaries grew 0.9% in January, more than twice as fast as in the prior month. Minimum wage increases and other annual raises kick in for many workers in January.

Incomes were also boosted by an inflation-adjustment in Social Security checks at the start of the year, which could help the roughly 70 million recipients spend more. Total Social Security income rose 9% in January compared with December. The personal saving rate increased to 4.7% in January, the highest in a year. (…)

Friday’s report showed that on a monthly basis, the PCE-price index rose 0.6% in January from December, the largest gain since June.

When adjusted for these rising prices, spending rose 1.1% in January from December. (…)

More data, more revisions, stronger income and stronger inflation.

Revisions:

• Wages and salaries have been rising 10.0% annualized since June. The original data had them rising about 6% YoY throughout 2022. January 2023: +0.9% MoM.
• Personal disposable income is 1.2% higher than originally reported. December PDI +4.4% YoY vs +3.2% original.
• Real PDI is 1.0% higher than originally reported. December real PDI -0.8% YoY vs -1.7% original.
• Real expenditures virtually unchanged so…
• … December savings rate was 4.5% vs 3.4% original and …
• … PCE inflation was +5.3% vs 5.0% original with …
• … Core PCE inflation at +4.6% vs +4.4% original with Q4’22 rising 4.3% a.r. vs 3.8% original. January core PCE: +0.57% MoM (+6.9% a.r.), +4.7% YoY.

Some more facts to mess up the picture even more:

• Between March and December 2022, monthly employment growth from the establishment survey (payrolls) averaged 382k. From the household survey: +123k.
• In December and January, payroll employment growth averaged 388k. Household employment: 805k.

Add the very mild weather and quirky statistical seasonal adjustment factors and you get a March FOMC meeting discussing a very foggy environment.

The latest iteration of GDP shows that the core of the economy has slowed to a crawl:

As my monetarist friend Hubert Marleau writes:

The contraction of the U.S. money supply, which is expected to continue because of the banks tightening their lending standard, will sour the lagging indicators like wages, employment and inflation on which the Fed depends on to conduct its monetary stance. The credit cycle has turned because the turnover of money will additionally slow down. The Fed’s Senior Loan Officer Survey for Q1 showed looming contractions in the supply of credit across all forms of business and household loans. Money tends to change hands less when the loan-to-deposit ratio falls.

Yet,

And the Atlanta Fed’s inflation nowcasting:

More Americans Are Turning to Part-Time Jobs Six times as many people currently work part-time by choice, rather than by necessity; “25 hours is the new 35.”

The number of Americans working part time rose by 1.2 million in December and January compared with the preceding months, according to the Labor Department. Most of that increase—857,000 workers—was driven by people who worked part time by choice, not because they were unable to find full-time work or their hours were cut.

The total number of people working part time voluntarily—22.1 million in January—is now almost six times the 4.1 million who are working part time but would prefer full-time hours. That is the highest ratio in two decades. In the first months of the pandemic, when millions of Americans were laid off and couldn’t find full-time jobs, or saw their hours cut, those numbers were about even. In the 20 years before the Covid-19 pandemic, the ratio typically stayed between three to one and five to one.

In total, 16.3% of the 160 million Americans who were employed in January worked part time hours, which the Labor Department defines as anything less than 35 hours in a week. (…)

The increase in part-time workers suggests that some employers are adjusting to a realization that the abundant labor supply of the past few decades may not continue, said Jeffrey Korzenik, chief economist at Fifth Third Commercial Bank  “When you run out of workers for full-time roles, you start considering part-time options,” he said. “That broadens your effective labor pool. It means working parents, older workers, and others who find part-time labor highly preferable can apply for your roles.” (…)

Many of the traditional downsides to part-time work haven’t changed. Part-time workers generally earn less for similar work than their full-time counterparts, and typically don’t qualify for benefits such as healthcare coverage. Mr. Golden has found hourly wages are about 20% less for part-time workers. (…)

While the recent jump was significant, in fact, the number of part-timers by choice simply got back to its steady long term level in December and January, in line with its pre-pandemic level.

Since March 2022, however, their number rose 5.8% against +1.2% for total employment (household survey), offsetting the troubling fact that full time jobs stagnated during that period.

The other fact is that the number of full time jobs, over time, follows real GDP. The dips post the GFC and post pandemic were unusually large but these two series now seem to be back in sync.

The last noteworthy fact is that the number of part-timers, voluntary of not, are all back in line with their respective long-term trend, flat for voluntary part-timers and declining for part-timers for economic reasons, all three currently lower than in February 2020.

• Millions of US Workers Are Still Missing After The Pandemic. Where Did They Go? Economists can’t agree where America’s missing workers went. Even the size of the US labor shortage is now in question

(…) The labor force is the sum of employed and unemployed people, and some researchers point to an estimate made by Fed economists of how big it should be based on population trends. Assuming people kept working at pre-pandemic rates, they projected a labor force of 168 million by the end of 2022. In reality, the figure was around 165 million, arriving at a shortfall of roughly 3 million.

Things got even muddier earlier this month, when the Labor Department revised its December count of nonfarm payrolls by more than 800,000 additional workers. So that 3 million-person hole in the labor force actually may be a third smaller, Wong said. (…)

• US companies say it is easier to hire despite low jobless rate Investors have been concerned that a tight labour market threatened the Fed’s efforts to bring down inflation
• Americans in Their 30s Are Piling On Debt The overall burden is up 27% since before the pandemic, more than for any other age group.

(…) It is also their fastest pace of debt accumulation over a three-year period since the 2008 financial crisis. (…)

The average credit-card balance for millennial borrowers was about $6,750 in January, up 26% from three years earlier, according to credit-score provider VantageScore Solutions. Balances were little changed for Gen X, and fell between 11% and 15% for older generations. Average personal-loan balances for millennials rose more than they did for overall borrowers. (…)

Younger borrowers are falling behind on their car payments at higher rates than other age groups, according to the New York Fed. Auto delinquencies have been on the rise in part because car prices soared over the past few years.

More millennials are behind on their credit cards compared with before the pandemic, according to the credit-reporting firm TransUnion. The percentage of most older borrowers in credit-card delinquency decreased over the same period. (…)

The government moratorium on federal student-loan payments could expire as soon as this summer, and a debt-forgiveness plan rolled out by the Biden administration last year remains held up in court. Americans in their 30s owe the most student debt compared with other age groups, according to the New York Fed.

“The three-year payment pause is pretty historically unprecedented, so we don’t have any benchmarks as to what we can expect coming out of this,” a New York Fed researcher told reporters on a call. “We’re keeping a close eye on whether or not there’s potential for that to spill over to other credit products.” (…)

Apartment Rents Fall as Crush of New Supply Hits Market Declines signal tenants may be maxed-out on how much income they can devote to rent

Renters with new leases in January paid a median rent that was 3.5% lower than they would have paid last August, according to estimates from listing website Apartment List. It was the first time in five years that rent fell every month over a six-month period, according to the same estimates.

Four other market measures by housing-data companies also show that new-lease rents either fell or remained flat in January compared with the previous month, extending a streak of monthly rent declines that began at the end of the summer. (…)

While some seasonal stalling in rents is normal, the market faces a significant headwind in the biggest delivery of new supply since 1986, according to projections from CoStar Group. Nearly half a million new apartments are coming on line this year as developers seek to cash in on the high rents that tenants have been paying. Many renters are unable to afford to buy a home because of higher mortgage rates and steep prices, so rentals have been in high demand. (…)

FYI:

• There is indeed seasonality in monthly rent renewals, partly broken and exacerbated by the pandemic. January’s renewals were 0.3% lower than December’s. Monthly rents measured by Apartment List typically increase between February and July.

• The average rent was $1338 in January, down 3.5% from the August peak but still up 3.3% YoY.
• The data is for new leases at professionally managed properties (~25% of all rentals), not renewals which typically account for 84% of leases.
• There are currently 932k apartment units under construction, about 2% of the total rental housing stock in the U.S.. Fannie Mae estimates the shortage of housing units at about 4 million.
• Rental vacancy rates, at around 6%, are the lowest since 1981 (5%, lowest ever).

Fed May Need to Hike to 6.5% to Cool Prices, Study Says

The authors — Brandeis University’s Stephen Cecchetti, JPMorgan Chase & Co.’s Michael Feroli, Deutsche Bank AG’s Peter Hooper, Columbia University’s Frederic Mishkin and New York University professor emeritus Kermit Schoenholtz — presented their paper at an annual policy forum sponsored by the University of Chicago Booth School of Business.

They examined 16 different episodes since 1950 in the US and several other large economies when the central bank tightened policy aggressively to cool prices. All of them were associated with a recession.

“In the current circumstances that already involve significant policy tightening (and a prospect for further restraint), an ‘immaculate disinflation’ would be unprecedented,” they wrote.

“Our analysis casts doubt on the ability of the Fed to engineer a soft landing in which inflation returns to the 2% target by the end of 2025 without a mild recession,” they wrote.

The 55-page academic study included a series of simulations to predict likely paths for the Fed’s benchmark policy rates. The computer models suggested rates would peak at either 5.6%, 6% or 6.5% in the second half of 2023. (…)

EARNINGS WATCH

Through Feb. 24, 465 companies in the S&P 500 Index have reported earnings for Q4 2022. Of these companies, 67.5% reported earnings above analyst expectations and 27.3% reported earnings below analyst expectations. In a typical quarter (since 1994), 66% of companies beat estimates and 20% miss estimates. Over the past four quarters, 76% of companies beat the estimates and 21% missed estimates.

In aggregate, companies are reporting earnings that are 1.1% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.1% and the average surprise factor over the prior four quarters of 5.3%.

Of these companies, 67.9% reported revenue above analyst expectations and 32.1% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 73% of companies beat the estimates and 27% missed estimates.

In aggregate, companies are reporting revenues that are 1.8% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 2.5%.

The estimated earnings growth rate for the S&P 500 for 22Q4 is -3.2%. If the energy sector is excluded, the growth rate declines to -7.4%.

The estimated revenue growth rate for the S&P 500 for 22Q4 is 5.7%. If the energy sector is excluded, the growth rate declines to 5.0%.

The estimated earnings growth rate for the S&P 500 for 23Q1 is -4.3%. If the energy sector is excluded, the growth rate declines to -6.2%.

  

Trailing EPS are now $221.75. Full year 2023e: $222.20. Forward EPS: $221.71e.

TECHNICAL WATCH

CMG Wealth is now charging for its weekly Trade Signals. More inflation!

Here’s my rendition of the Large Cap 13/34–Week EMA Trend via Trading View. The recent bullish signal remains uncertain given the daily volatility.

• Retail Participation: Still one of the most fascinating phenomena of the pandemic years — the rise of retail. And they’re not leaving.

Source:  @pkedrosky

Speaking of inflation, this chart illustrates how it’s the most important things in life that inflate the most.

Visual Capitalist

Q4’22 GDP REVISIONS

Fourth-quarter real GDP growth was revised down by two tenths to +2.7%. Downward revisions to personal consumption (-0.7pp to +1.4%) more than offset upward revisions to business fixed investment (+2.1pp to -4.6%). Net foreign trade contributed -0.5pp to growth, compared to -0.6pp as previously reported.

Core PCE inflation was revised up 0.45pp from +3.90% to +4.35% annualized, and the year-on-year rate was revised up 0.11pp to +4.83%.

Jobless Claims Edged Lower Last Week Worker filings for unemployment benefits remain historically low in a strong labor market.

Initial jobless claims, a proxy for layoffs, decreased by 3,000 to a seasonally adjusted 192,000 last week, the Labor Department said Thursday. Weekly claims have remained below the 2019 prepandemic average of about 220,000 since the start of the year.

The four-week moving average of weekly claims, which smooths out volatility, rose slightly to 191,250. (…)

Continuing claims, a proxy for the total number of ongoing unemployment benefits payments, decreased by 37,000 to 1.65 million in the week ended Feb. 11. (…)

• Even JPMorgan Is Lashing Out At Ridiculous Seasonal Adjustments In Key US Data

It has become impossible to be an economist or data-watcher (and thus strategist, investor, pundit or analyst) in the US: the reason is that seasonal adjustments have made virtually every data set a load of garbage, with little relevance to the real world. (…)

Which brings us to today’s weekly initial jobless claims report, which once again surprised to the downside, and despite wave after wave of mass layoffs (and severance), it magically dropped to four-week lows, (…).

In a note from JPM’s Dan Silver, the bank’s economist points to the stubbornly, laughably low initial jobless claims, especially when considering directly tabulated reports of layoffs which in January just hit a multiyear high (according to Layoffs.fyi)…

… and politely says that “some alternative seasonal adjustments of the initial claims data show some less favorable changes in filings from recent weeks than the official figures.”

Here, JPM is merely echoing Goldman, which several weeks ago also found that initial claims are unrealistic, and that when looking at credible, state-level WARN mass layoff notices initial claims are far higher.

It’s not just JPM and Goldman, however: three weeks ago, UBS also joined the fray, and showed that yet another data series – Job Openings – is either intentionally or accidentally inflated, and that  when look at third party data, the real number of job openings is about a third of what the monthly JOLTS report indicates. (…)

But it’s not just the sellside: both the Philadelphia Fed and the BLS itself (!) recently found that the monthly NFP data is useless. (…)

Of course, if UBS knows this, and JPM knows this, and Goldman knows this, why not just call out the BS? Simple: the Biden admin has until February 2024 to come clean, which is when the official corrections to all the data errors will be revealed, as UBS concludes:

… Unfortunately, what we, the BLS, and the Philly Fed staff see as overstatement in 2022, will not be corrected until February 2024. (…)

Tech layoffs:

The Challenger Report, which tallies all job cuts announcements, says that

The Technology sector announced the most cuts with 41,829, 41% of all cuts announced in January. (…) Since November 2022, which saw the highest monthly total for the sector since Challenger began tracking in 1993 with 52,771, Technology companies have announced 110,793 job cuts. January’s total is the second-highest for the sector on record.

Here’s the chart on all job cuts:

Last month’s total is the highest January total since 2009, when 241,749 were announced in the first month of the year. It is the highest monthly total since September 2020 when 118,804 job cuts were reported. (…)

In January, employers announced plans to hire 32,764 workers, primarily in Entertainment/Leisure. This is down 58% from the 77,630 announced in January 2022 and down 37% from the 51,693 new jobs employers announced in December of last year. (…)

Retailers announced the second-most cuts in January with 13,000, up 3,225% from the 391 announced in the same month in 2022. Financial firms announced 10,603 cuts last month, up 1,423% from the 696 cuts announced in January 2022.

But the BLS’ Non-Farm Payroll report counted 30,100 new “seasonally adjusted” retail jobs in January and 6,000 in financial activities.

Finally, is it a coincidence that actual NFP numbers have significantly exceeded consensus forecasts in the last 12 months as Apollo Management shows? (h/t @SamRo)

A Turning Point in Wage Growth? (NY Fed)

(…) Our model decomposes wage growth in each sector of the economy into the sum of a persistent component common to all sectors, a persistent component specific to that sector, and some transitory shocks. Through this decomposition, we can assess whether the sharp increase in wage growth experienced by the U.S. economy over the past two years is broad-based or driven by specific sectors. This sectoral approach is motivated by the substantial reallocation of workers across different sectors of the economy triggered by the pandemic, which is likely to have affected aggregate wage growth. (…)

In this blog post, we break down aggregate changes in nominal wages into seven sectors of the economy. (…)

The chart below shows our estimated trend (solid blue line) together with the realized twelve-month wage growth defined as described above (dashed black line). The shaded area around the trend is a 68 percent confidence band that captures the uncertainty associated with the estimate. We highlight two main takeaways.

Wage Growth and Its Persistent Component

First, the trend remained stable between 3.2 percent and 3.7 percent between 2016 and 2020. Hence, most fluctuations in observed wage growth over that period, including those in the first part of the pandemic, can be ascribed to transitory shocks.

Starting in early 2021, the trend increased markedly, nearly doubling over the course of the year. As such, a large chunk of the wage growth we saw over the course of 2021 appears to be persistent. (…)

Second, the model suggests that the trend may have peaked in the early months of 2022, then started to decline. But, as shown by the shaded areas, there remains considerable uncertainty around the pace of this slowdown in the trend component of wage growth. (…)

Is the Persistence of Wage Growth Driven by Specific Sectors?

While sectors differ in terms of their contribution to the persistence of wage growth, the surge observed in 2021 is broad-based. Three industries moved first and contributed to more than half of the observed aggregate increase: education and health, finance and business services, and trade and transportation.

Sectoral Decomposition of Persistence in Wage Growth

Interestingly, leisure and hospitality had a relatively small contribution to the overall trend dynamics. While the estimated trend specific to that sector has gone up, this increase has been limited.

Since early 2022, most sectors have shown a deceleration, if not a fall, in the persistent component of wage growth. No specific sector, however, seems to be behind the recent decline in the overall trend component. In addition, the decline in persistence in some sectors, such as trade and transportation, recently stalled or even reverted.

All in all, this suggests that focusing on specific sectors of the economy is not particularly helpful in explaining the persistence of wage growth, but a more comprehensive approach is needed, as we expand on next.

While some sectors played a bigger role in the earlier increase and subsequent deceleration of the aggregate trend in wage growth, these changes appear widespread across the economy. In the chart below, we distinguish between changes in trend that are common across sectors and changes in trend that are specific to each sector. Like the sectoral breakdown shown above, the common and sector-specific wage growth trends are shown in deviation from their respective average over 2017-19.        

Persistence of Wage Growth: Common or Sector-Specific Trend?

The increase in trend wage growth witnessed in 2021 is clearly driven by the common component, which accounts for more than two-third of the increase. The deceleration in trend wage growth taking place over 2022 is also entirely driven by the same common component.

Looking ahead, it is unclear whether the common trend component of wage growth will keep decreasing, because the estimates for late 2022 suggest that the pace of this decline has slowed. Adding to this concern, the sum of the sector-specific trend components (the blue area in the chart above) has also plateaued in the last year and has not shown signs of reversal yet.

Despite the very obvious benefits of wage growth, the persistence of the recent increase in wage growth is potentially cause for concern because it may become incompatible with price stability. Wage growth is often thought to feed back into price hikes in labor-intensive sectors, and this pass-through may have increased during the pandemic.

In the chart below, we inspect how the trend in wage growth relates to the trend in price inflation in core services (excluding housing) recovered from PCE data. (…)

Persistence in Wage Growth and Services Inflation

Interestingly, our results not only suggest that the persistent component of core services inflation started to increase before trend wage growth did, but also show that it has come down faster, despite the fact that both trends peaked around the beginning of 2022. Persistent services inflation markedly slowed down between June and October, although it seems to have levelled off since. A further deceleration in trend wage growth may ease inflationary pressures, but considerable uncertainty about the speed of this decline remains.

Dimon Says the US Economy Is Facing Some ‘Scary Stuff’ Ahead

(…) “The US economy right now is doing quite well — consumers have a lot of money, they’re spending it, jobs are plentiful,” the JPMorgan Chase & Co. chief executive officer said on CNBC Thursday. “Out in front of us there’s some scary stuff.”

Dimon said the level of uncertainty about where the economy is headed is worse than usual, citing a list of obstacles that included the Federal Reserve’s quantitative tightening as well as “Russia, Ukraine, oil, gas, war, migration, trade, China.”

The longtime CEO echoed comments he’s made in recent months on the Fed’s ongoing effort to fight inflation. He predicted that policymakers will have to pause rate hikes, but they might ultimately have to resume them to rein in inflation.

Dimon said last month that there’s a 50% chance that the Fed will boost its benchmark rate to about 5%, and a 50% chance it will have to go to 6%.

• Summers Sees Signals of a Sharp Drop-Off in Economic Activity

(…) “We’ve got an extremely difficult economy to read,” Summers said on Bloomberg Television’s “Wall Street Week” with David Westin. “People may be reading a bit too much into the moment in terms of economic strength — relative to the way things could look very differently in a quarter or two.” (…)

Coincident indicators “look very strong,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television. But “there are a variety of leading indicators that are more troubling,” he said. Among the signs of concern:

• Inventories “look to be building up relative to sales.”
• Companies are “reporting concerns about their order books.”
• The business sector appears to have a high payroll head-count relative to “the level of output they’re producing.”
• “Consumer savings are being depleted, with a low savings rate.”

“There is stuff when you look down the road a bit that has to be substantially concerning about the Wile E. Coyote kind of moment,” Summers said, reiterating his reference to the cartoon character that falls off a cliff.

Federal Reserve policymakers will need to “stay nimble and flexible” given the uncertainty, Summers said. The central bank should “resist the pressure to be giving strong signals about what it’s going to do next,” he said. (…)

Moody’s: Global Oil is Oversupplied

(…) First, demand was and continues to be weak in most advanced economies. U.S. oil demand is approximately 10% below its level a year ago in the face of high prices.

Second, coordinated releases of oil from global strategic petroleum reserves put additional supply on the market. And third, strong EU purchases of crude oil ahead of the
December implementation of a bloc-wide ban on Russian oil imports created a “sell the news” situation, as oil demand was no stronger when the ban went into effect. (…)

If the sanctions are fully implemented as envisioned, EU imports of Russian oil could fall another 1.2 million bpd by spring, and the infrastructure simply does not exist to move that volume of crude oil to Asia via pipeline. Because of a lack of infrastructure that could take years to build, Russia has nearly exhausted its ability to ramp up oil sales to other countries. In response, its oil ministry announced that 500,000 bpd of production would be shut in as of March.

The Moody’s Analytics forecast expects another 500,000 bpd of Russian crude oil production to be lost throughout the course of the year. Sanctions evasions will continue, but Russia will not be able to replace Europe customer for customer and will run out of places to store its oil.

The long-term implications are equally damaging. It is unlikely that Europe will resume buying Russian oil once it has secured new, more reliable sources of supply. This
would reduce Russia’s market share of the global oil trade for at least a decade.

The oil market is oversupplied, as supply increases have outpaced growth in demand in the year since Russia invaded. Not only has Russia been able to reroute exports to this point, but U.S. oil production has climbed by 1 million bpd as higher prices created a strong incentive to produce. A second source of new oil supplies has been OPEC. Saudi Arabia and the United Arab Emirates have headlined a 700,000-bpd increase in crude oil production since the start of last year. And global SPRs have been a third source of new supplies. At the peak, allied countries were releasing up to 1 million bpd of oil from reserves to tamp down consumer price increases. Combined, these new sources of supply amount to 2.2 million bpd.

At the same time, demand growth has been exceptionally weak because of broad-based monetary tightening by the world’s major central banks. China’s zero-COVID policy was also a major factor weighing on oil demand. Weak demand, coupled with strong supply growth, allowed private sector OECD inventories to increase over the past year. (…)

Oil prices are expected to move sideways, averaging $90 per barrel in 2023 and $87 by the end of the year. Investors have already priced in the multiple reasons we expect the oil market to move from surplus to deficit throughout the year. Most importantly, China’s economy is expected to surge as it emerges from COVID-19 lockdowns. Developing countries are the main sources of global oil demand growth, and China is the biggest.

Second, we expect the EU to implement the overwhelming majority of its Russian oil sanctions. Pipeline exports to Slovakia, the Czech Republic and Hungary will continue, but seaborne Russian oil imports will cease. This will force Russia to shut down roughly 1 million bpd in oil production. Third, we expect OECD SPR releases to wind down. The U.S. Department of Energy is already detailing plans to refill the SPR at prices of $72 per barrel. Fourth, we expect U.S. oil production to grow by 250,000 barrels between now and the end of the year. The pace of growth will be much slower than last year because prices have fallen, but they remain above the levels necessary to profitably drill new wells.

Last, we expect the global economy to avoid recession. The European economic outlook has brightened, and the U.S. labor market remains red-hot. While interest rate increases will continue to slow global growth, central banks are expected to achieve price stability without a hard landing that would undermine global oil demand.

Risks to the forecast are balanced. On the downside, our key assumptions are that the global economy avoids recession, Russia will continually be forced to shut in production, and the Chinese economy’s reopening will fuel blockbuster growth in global oil demand. If these do not happen, the oil market will not shift from oversupply to deficit and prices will underperform our forecast.

On the upside, we could be underestimating the rebound in global oil demand growth. Unexpected supply outages in Africa or the Middle East could also push oil prices above their forecast levels.

Peacetime Would Be a Black Swan Event For Energy Even if an end to the war in Ukraine isn’t imminent, energy producers need to consider the possibility before they invest in long-term projects

(…) Europe will probably never let itself become as reliant on one source as it was before the war, when Moscow supplied 40% of the bloc’s natural gas imports. However, Brussels still needs Russian gas and increased LNG imports from its foe by 11% in 2022, according to data from Rystad Energy. (…)

It could be tough for U.S. LNG to remain competitive in peacetime. Russian pipeline supplies tend to be cheaper than seaborne imports once liquefaction, freight and re-gasification costs are factored in. And most of the infrastructure linking Europe and Russia is still intact. Even excluding the NordStream undersea pipelines that were sabotaged last year, there is 100 billion cubic meters of available capacity, according to the OIES.

For LNG producers, the risk of being outcompeted by a return of cheap Russian pipeline gas to Europe is highest between now and 2026. Significant new global gas supply won’t arrive until then, so Europe may find it harder to refuse more Russian flows. In one of five scenarios for Russian gas modeled by the Columbia Center on Global Energy Policy, Europe would import 56.5 billion cubic meters of pipeline gas from Russia in the event of a truce. This is less than half of levels seen before the war but roughly double what it is receiving today, so it would reduce the region’s need for LNG. (…)

Europe hopes it won’t need gas in such big quantities for much longer, the war having only hardened its determination to shift to renewable sources of energy. Before the conflict, Rystad Energy estimated that the EU would have 688 gigawatts of wind and solar capacity by 2030, a 75% increase from 2022 levels. Additional measures announced since Russia’s invasion mean capacity is now expected to be 858 GW by the end of this decade. (…)

Speaking of NordStream, David Hay offers this:

One of the strangest geopolitical episodes of the past year was surely the partial destruction of the Nord Stream pipelines. The act itself wasn’t strange (there is of course ample precedent for structural sabotage during wartime). What was strange was the Western media’s contorted (yet nearly unanimous) attempt to pin the attack on… Russia? As in Putin’s Russia, yes. Despite obvious strategic dividends for NATO and the United States — to say nothing for their destructive capacity to pull it off — somehow, Russia became the agreed upon culprit, with any evidence or arguments to the contrary angrily shouted down as the mouth noises of (God help us) Putin apologists and/or puppets.

One of those who suggested in the immediate aftermath that, indeed, the West itself might have been responsible for the attack was Jeffrey Sachs, who recently appeared with Freddie Sayers on the latter’s show UnHerd to take something of a victory lap. Said lap is owed to recent reporting by Seymour Hersh confirming much of what Sachs himself suspected from the outset. But we’ll let him tell you:

FYI: