Crude on a Rollercoaster

Energy prices began the week with a sharp tumble. This came in anticipation of more worldwide production and fears that slowing economies will reduce demand for crude and its products, such as gasoline and diesel fuel. Then Saudi Arabia threw the markets a curveball with a Monday morning announcement stating they would not increase production and might even consider a cut. January crude futures fell under $76 per barrel, then exploded to over $82 on Tuesday. Crude fell back below $77 on Wednesday as the Group of Seven economic powers, including the U.S., announced plans to institute a price cap on Russian oil. The slide accelerated Wednesday as China's Covid outbreak worsened and threatened their reemerging recovery.

Rail Could Strike Commodities

If railroad unions don’t reach agreements with rail companies regarding demanding schedules and paid sick time within the first week of December, a major rail strike could bring the U.S. economy to a screeching halt as soon as Dec. 5. Although our grains, fertilizers, foods, petroleum, coal, lumber and hundreds of other commodities may initially be transported by barge, ships or pipelines, our producers are critically dependent on rail. Rail serves as the middle of the supply chain to our consumers.

The availability and cost of most bulk commodities is also dependent on trucking. Trucks move commodities from low population areas toward U.S. cities where they are consumed or manufactured into finished goods. The threat to our economy is so high that Congress will probably intervene as they did in 1992 and impose contract terms on the railroad workers.

Grocery Prices Depend on Rail

The U.S. Department of Agriculture reminds us that the average American spends far less of their income on food than anyone else in the world. We spend between six percent to seven percent, while Europeans spend 10 percent, Chinese spend 35 percent and many undeveloped nations pay way over 50 percent. This is made possible due not only to the efficiency of our agricultural producers, but also to our highly efficient freight rail system.

Winners and Losers So Far This Year

Natural gas has nearly doubled in price since December 2021. Crude, hogs, grains and coffee have all increased as well. Cotton, copper and stock index futures have dropped the most.