May 14, 2011

Crude and products edged upward yesterday as analysts tried to determine where demand and supply are headed amidst the rising Mississippi and the growing European economies. The movement throughout the day was falling prices and only a last minute surge brought prices up. There's a strange dynamic brought about by a fragile economy seemingly unable to get positive traction despite the inflationary quantitative easing that has poured billions of dollars into the economy and reflated Wall Street and commodities and not much else. If the economy remains weakened and fuel prices continue to rise, there will be a big fall that will be a reprise of 2008 but with the inflationary tensions making matters even worse.

Since food is not part of the consumer price index in determining inflation, not much has been written about the destruction of productive farmland in Missouri, Arkansas, Mississippi, and Lousiana, farmland all along the Mississippi Delta by record-setting floods. Thousands of acres of corn (ethanol), rice, soy beans, and cotton have been inundated and the crops destroyed. The local news outlets also talk of milo but I have not seen much milo growing in the immediate area since 2007. If the water should recede by early June and the fields workable, there may be a lot of late soy bean planting if the seed companies can come up with enough seed. Corn and soy beans have so many agribusiness uses that the loss of thousands of acres may add to the price of chicken, hamburger and milk and continue to put steak out of reach for millions.

For the week, gasoline actualy dropped but it has truly been volatile and had large fluctuations within that time period, twice fallling over 22¢ but also rising in large numeral fashion. Gasoline seems to mirror the many conflicted views of the economy and never more so than the past week. A surprise is the nearly 10¢ rise in distillate that could presage more diesel demand (a growing economy?). This week: WTI +$2.47, $99.65; Brent +$4.14, $113.83; RBOB -1.57¢, $3.0744; HO +9.65¢, $2.9422.