Natural Gas

The Fed reported February Industrial Production of -0.1%, a big drop from January's 0.3% increase, and a major miss from expectations of 0.6%. The primary reason for the drop was a decline in consumer goods final products which declined by 0.5%. Commentary from the Fed for the reason on this surprising decline: "The production of consumer goods fell 0.5 percent in February, largely because of weakness in consumer
energy products. The output of consumer durable goods rose 2.4 percent, with gains in all of its major
categories. The production of consumer automotive products advanced 3.5 percent, and the index for home
electronics moved up 1.0 percent. The index for appliances, furniture, and carpeting climbed 3.1 percent,
which almost offset its decline over the two previous months, and the production of miscellaneous consumer
durables increased 0.6 percent. The output of non-energy nondurable goods moved down 0.2 percent.
Reductions in the production of foods and tobacco, of chemical products, and of paper products more than
offset an increase in clothing output. The output of consumer energy products fell 5.2 percent, largely
because of a drop in residential sales by electric and natural gas utilities."

The capacity
utilization rate for total industry edged down 0.1 percentage point to 76.3 percent, a rate 4.2 percentage
points below its average from 1972 to 2010. And since this is a key variable for "slack" calculations by the Fed, it provides yet another clue into the possible move to QE3 as the Fed will likely see substantial potential to make up this variation from the trendline using another few hundred billion in asset purchases.

Initial claims for the past week came at 385K on expectations of 388K, just slightly lower from last week's upward revised 401,000 (and imagine what it would look like if we had a 4 handle pre-revision last week: naturally the BLS can not take that risk). Continuing claims were at 3.706 MM, an 80K drop from the prior week, and 44K below expectations. Naturally the prior number was also revised higher from 3,771K to 3,786K but this near-100% revision bias is no news to anyone by now. About 60k Americans were added to EUCs and extended claims in the week ended February 26. At this point it is safe to say that nobody knows how many 99ers are rolling off on a weekly basis from the EUC/Extended claims ranks. And elsewhere the CPI confirmed yesterday's PPI data, in showing that inflation continues to rise for everyone, expect those who don't use energy and eat. CPI increased by 0.5% sequentially in February on expectations of 0.4%, and 2.1% Y/Y.  This time even the core CPI increased by more than expectations, rising by 0.2% while consensus called for a 0.1% rise. From the report: "Though the seasonally adjusted increase in the all items index was broad-based, the energy index was once again the largest contributor. The gasoline index continued to rise, and the index for household energy turned up in February with all of its components posting increases. Food indexes also continued to rise in February, with sharp increases in the indexes for fresh vegetables and meats contributing to a 0.8 percent increase in the food at home index, the largest since July 2008. The index for all items less food and energy rose in February as well. Most of its major components posted increases, including the indexes for shelter, new vehicles, medical care, and airline fares. The apparel index was one of the few to decline."

Japan's nuclear crisis has deepened and we deeply regret to say that there is now the real possibility of a nuclear catastrophe. Investor panic has set in with the Nikkei down over 16.5% in two days and the Topic index down by 17% - its worst two-day loss since the 1987 Wall Street stock market crash. The cost to insure Japanese debt has surged to a record with credit-default swaps protecting Japanese government debt for five years soaring 27 basis points to a record of 125 basis points. One UBS trader said that the deteriorating nuclear crisis had led to "near panic across local credit-default swap markets." While most equity indices and commodities have fallen, some sharply, gold has remained resilient and is down 1% in US dollar terms and is higher in Australian dollars which like other so called 'commodity' currencies has come under pressure in recent days. Gold remains marginally higher in all currencies since the tragedy began last Friday.

The media is still banging the nuclear fear drum over and over again to keep people watching but the reality is that the chance of a catastrophe, at this point is very slim...

Gold ticked lower momentarily to $1,417.63/oz on the open in Asia prior to rising to over $1,432/oz where determined sellers sold aggressively, sending gold back down to near Friday's closing price on the London AM Fix (see chart). Silver also rose initially prior to determined selling. Ordinarily, last week's lower silver and gold weekly close would lead to further momentum-driven liquidation but these are no ordinary times. The catastrophe in Japan is already leading to safe haven demand for gold. Premiums for gold bars in Tokyo rose to their highest level since February. Overnight, gold bars were quoted at a premium of $1 an ounce to the spot London prices in Tokyo, up from zero last week and a discount of 50 cents two weeks ago. In Japan, panic buying and stocking up with essentials such as food and gasoline has seen shortages developing, prices rising sharply and concerns of inflation. A bullion dealer in Tokyo said that premiums were higher as the Japanese market is a bit tight on gasoline, so there are inflation risks."

Japan's 9.0 earthquake is most likely a non-event for the crude oil, but the nuclear power basically has met its Deepwater Horizon.

No one can predict exactly how this will all shake out, but Doug Casey has long said that a return to a gold standard, or some modern equivalent, is almost inevitable. That’s because, for the reasons Aristotle outlined 2,000 years ago (it’s durable, divisible, consistent, convenient, and has intrinsic value), gold is hands-down the world’s best money. Now, Gresham’s Law tells us that bad money drives out good, but that’s only true when legal tender laws hold sway (incentivizing people to hoard what’s perceived to be “good” money and spend the “bad” money as fast as they can). When people give up on the local legal tender, Gresham’s Law goes into reverse, and good money chases out bad. The dollarization of third-world economies is an example of this, the dollar being perceived as being good when compared to many shakier currencies.

A just released report by Goldman's Jeffrey Currie attempts to quantify the impact of the Tsunami on the Japanese economy from a commodity standpoint. Currie summarizes his conclusions as follows: "Assuming that the broader power grid infrastructure has not been permanently damaged, we believe today’s events are likely to put upward pressure on residual fuel oil and diesel cracks, LNG, UK natural gas and rice; downward pressure on naphtha cracks and Dubai spreads relative to other crude grades." Yet the thing we found more interesting than energy related bottlenecks was the disclosure toward the end of the report discussing the threat to the Japanese rice harvest: "In addition to the damage to energy infrastructure from the earthquake, the tsunami also impacted rice producing regions in Japan. While Japanese rice inventories are large, this puts the 2011/12 crop production at risk and may in turn drive Japanese rice imports higher, posing upside risk to current prices." Granted, Japan is not a big exporter of rice, but it is a top 10 consumer. Should the country's consumption (which is estimated at around 9 million metric tons) need to be satisfied by a surge in imports, and with the price of rice already dependent on the margin on speculative money, this could be the catalyst that send the grain, which has plunged in price over the past month, finally break beyond any potential manipulative price suppression schemes.

Three weeks ago we first mused about the irrational endgame of it all when we asked: "When Hussein left Kuwait he set the oil wells on fire. Will Ghaddafi?" It now appears that this could well be the endgame, after Al Jazeera reports that "desperate Gaddafi might hit oil facilities in an attempt to fend off encroaching rebels, sparking a human catastrophe." And obviously in order to prevent this, the US will be "forced" to institute a no fly zone, thereby commencing a full blown invasion of the country, and eventually destabilizing the region completely.

The political class and their mouthpieces in the corporate controlled mainstream media are desperately trying to spin the oil price surge as a temporary inconvenience that will not derail their phony recovery story. Brent crude closed at $116 per barrel yesterday. West Texas crude closed at $104 per barrel. Unleaded gas has risen by 22% in the last month and 60% since September 1, 2010. I’m sure this slight increase hasn’t impacted Ben Bernanke or Lloyd Blankfein. Their limo drivers just charge it to their unlimited expense accounts. Joe Sixpack, driving his 15 mpg Dodge RAM pickup, is now forking over an extra $1,200 per year in gas expenditures, not to mention more for everything impacted by oil such as food, utilities, and anything transported to their local Wal-Mart by truck (everything). Luckily, the Federal Reserve and crooked politicians only care about their comrades in the top 1% elitist society, for whom oil is an investment, not an expense.

Should the U.S. ban oil imports [except Canada] for energy security and independence? At least that's the policy proposed by a study group at Yale.

As of yesterday we need to immediately open up ANWR and the shallow off-shore regions to exploration and drilling. I love caribou as much as the next person, but this must be done. Even the most conservative estimates tell us that by 2018 if development were green-lighted today, ANWR could be producing as much as 780,000 and then slowing to 710,000 barrels a day by 2030. Also it is estimated that 18 billion barrels of crude oil are contained in areas currently off-limits to drilling for environmental reasons. No nation has denied itself so much abundance of its own domestic natural resources as has the USA.

It has been a long wait for “peak oilers”. Egypt was a snore, but Libya is a different kettle of fish. Global production peaks in 2015, and after that the sushi hits the fan. Next stop, $300 a barrel?

Tim-fucking-berrrrrrrrrrrrrrrrrrrrrrrrrrr. Holy shit is it on like...

More trouble for Italy, whose CDS has surprisingly not spiked in OTC trading yet. In addition to a "technical glitch" halting its stock exchange, now Reuters reports that the country's natural gas deliveries may be compromised. "Political unrest has hit Libya, which is Italy's biggest oil
supplier and covers about 10 percent of its gas needs. Gas is
carried via underwater pipeline Greenstream, which is controlled
by oil and gas major Eni. "Supplies have not been interrupted, but the situation is
very complicated," Industry Undersecretary Stefano Saglia told a
conference on Tuesday. Gas flows from Libya into Italy through the 510 km pipeline
have been slowing since late Monday, and the situation is
worsening, Italian energy publication Staffetta Quotidiana said,
quoting sources close to the situation. Who would have thought that African revolutionary butterflies can flap their wings and cause the price of that most hated of products - nattie, to be on the verge of surging.