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Don't forget the Ukraine war which pushed oil and natural gas prices through the roof as travel really started to open back up. Since energy is an input to most

by kurthr 3y ago

Don't forget the Ukraine war which pushed oil and natural gas prices through the roof as travel really started to open back up. Since energy is an input to most of the economy 50-100% increases in pricing will have a significant effect, and so will 50-100% decreases (though market prices fall more slowly than costs allowing higher profits). https://www.macrotrends.net/2500/crude-oil-vs-natural-gas-chart https://www.macrotrends.net/2500/crude-oil-vs-natural-gas-ch... People who think quantitative easing is "money printing" haven't looked at how reserves work (and how circulating money is created through loans) or at the correlation of QE/QT on either inflation or deflation in the US, the EU, or Japan. Now it does increase liquidity and that may increase asset prices slowly. https://research.stlouisfed.org/publications/economic-synopses/2014/01/10/quantitative-easing-in-japan-past-and-present https://research.stlouisfed.org/publications/economic-synops... The Fed did keep rates a bit low for a while, they will also keep them a bit high for a while since they are "data driven" and the data always lags. We seem to be lucky this time that delayed infrastructure stimulus (not the pandemic business handouts) is offsetting decrease in credit, but it's unlikely "this time is different" so we'll almost certainly have a recession to kill inflation expectations and a "banking event" that causes Fed rates to fall. Interestingly, the treasury spend down caused by debt ceiling shenanigans seems to have lowered long term rates for a few months which also helped loans/spending in the short term.

helij 3y ago
I remember energy providers here in the UK went under way before Ukraine war because of electricity price spike. When war started we had another spike but it was short and prices are now at the same level as before the war but still higher than in July 2021. Some data here: https://www.ecb.europa.eu/pub/economic-bulletin/focus/2022/html/ecb.ebbox202204_01~68ef3c3dc6.en.html https://www.ecb.europa.eu/pub/economic-bulletin/focus/2022/h... Why is the narrative everywhere still that prices are higher because of the war in Ukraine?
- blitzar 3y ago
  Because the true reason is political, and politicians are the ones writing the narrative.
- kurthr 3y ago
  Well, it may be political, but the reason that European gas prices rose dramatically in Dec 2021 (there were many articles in Bloomberg and FT) was due to Gazprom restricting supply... it's almost as if they new something? Maybe they were reading the NYT. https://www.nytimes.com/2021/12/23/us/politics/russia-ukraine-military-biden.html https://www.nytimes.com/2021/12/23/us/politics/russia-ukrain... "European prices skyrocketed when the dominant external supplier, Gazprom, started to withhold supplies in Q4 2021." I really appreciate your Chart A where one can see that prices went back down until the war started and then spiked 1.5x higher and that only because of a couple of quite mild winters. It's certainly reasonable to make the case that investment in Oil and Gas fell quite a bit from 2019 (economists were expecting a recession in 2020 before COVID), but that didn't drive rapid reductions in supply and historically high prices... a war did.
  - helij 3y ago
    Look at gas and electricity prices. They started rising way before Q4. When we were all shaking about electricity prices mid year 2021 no one ever mentioned anything about Russia, Ukraine or Gazprom as being the sole contributor. "The rise in costs has been put down to a number of factors, including a cold winter earlier this year which left gas stocks depleted, as well as refineries in the US being shut down by Category 4 Hurricane Ida, according to industry analysts. High demand for liquefied natural gas from Asia and a drop in supplies from Russia have also contributed to the price rise." https://news.sky.com/story/why-is-a-rise-in-gas-prices-pushing-up-electricity-costs-energy-crisis-in-four-charts-12413052 https://news.sky.com/story/why-is-a-rise-in-gas-prices-pushi...
    - kurthr 3y ago
      I guess you're saying that oil at $100/barrel makes sense and I wouldn't disagree... That's about where it's been +/-$20 except during the crazy swings caused by the war and pandemic (remember it went NEGATIVE) events. Those don't really effect electricity prices so much, though. The gas market, however, is permanently altered. You weren't going to get to %150 higher prices for gas (which drives marginal electricity prices) in Dec 21 or %200 higher prices for gas in Feb 22 without Gazprom supplies being cut. The winter before was plenty cold in 2021 (coldest since 2010) and it only caused a %60 higher price for electricity and 30% higher for gas for a month. We're over a year into Ukraine and gas is stable at 50% higher than it's start which was the previous temporary winter peak. It'll go crazy again this winter if it's cold, but that will also be transitory and probably come back down to a 50-60% higher new normal barring "events".

by kurthr 3y ago

helij 3y ago

I remember energy providers here in the UK went under way before Ukraine war because of electricity price spike. When war started we had another spike but it was short and prices are now at the same level as before the war but still higher than in July 2021. Some data here: https://www.ecb.europa.eu/pub/economic-bulletin/focus/2022/html/ecb.ebbox202204_01~68ef3c3dc6.en.html https://www.ecb.europa.eu/pub/economic-bulletin/focus/2022/h... Why is the narrative everywhere still that prices are higher because of the war in Ukraine?

blitzar 3y ago
Because the true reason is political, and politicians are the ones writing the narrative.
kurthr 3y ago
Well, it may be political, but the reason that European gas prices rose dramatically in Dec 2021 (there were many articles in Bloomberg and FT) was due to Gazprom restricting supply... it's almost as if they new something? Maybe they were reading the NYT. https://www.nytimes.com/2021/12/23/us/politics/russia-ukraine-military-biden.html https://www.nytimes.com/2021/12/23/us/politics/russia-ukrain... "European prices skyrocketed when the dominant external supplier, Gazprom, started to withhold supplies in Q4 2021." I really appreciate your Chart A where one can see that prices went back down until the war started and then spiked 1.5x higher and that only because of a couple of quite mild winters. It's certainly reasonable to make the case that investment in Oil and Gas fell quite a bit from 2019 (economists were expecting a recession in 2020 before COVID), but that didn't drive rapid reductions in supply and historically high prices... a war did.
- helij 3y ago
  Look at gas and electricity prices. They started rising way before Q4. When we were all shaking about electricity prices mid year 2021 no one ever mentioned anything about Russia, Ukraine or Gazprom as being the sole contributor. "The rise in costs has been put down to a number of factors, including a cold winter earlier this year which left gas stocks depleted, as well as refineries in the US being shut down by Category 4 Hurricane Ida, according to industry analysts. High demand for liquefied natural gas from Asia and a drop in supplies from Russia have also contributed to the price rise." https://news.sky.com/story/why-is-a-rise-in-gas-prices-pushing-up-electricity-costs-energy-crisis-in-four-charts-12413052 https://news.sky.com/story/why-is-a-rise-in-gas-prices-pushi...
  - kurthr 3y ago
    I guess you're saying that oil at $100/barrel makes sense and I wouldn't disagree... That's about where it's been +/-$20 except during the crazy swings caused by the war and pandemic (remember it went NEGATIVE) events. Those don't really effect electricity prices so much, though. The gas market, however, is permanently altered. You weren't going to get to %150 higher prices for gas (which drives marginal electricity prices) in Dec 21 or %200 higher prices for gas in Feb 22 without Gazprom supplies being cut. The winter before was plenty cold in 2021 (coldest since 2010) and it only caused a %60 higher price for electricity and 30% higher for gas for a month. We're over a year into Ukraine and gas is stable at 50% higher than it's start which was the previous temporary winter peak. It'll go crazy again this winter if it's cold, but that will also be transitory and probably come back down to a 50-60% higher new normal barring "events".