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The world’s most important fuel heads for the shortage that touches everything

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(Bloomberg) — There is no fuel more important to the global economy than diesel. Works in trucks, buses, ships and trains. It drives construction, manufacturing and farming machinery. It was burned to heat homes. And with natural gas prices rising, it is also being used in some places for power generation.

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Within the next few months, nearly every region on the planet will face the threat of a diesel shortage at a time when a supply crisis in nearly all of the world’s energy markets has exacerbated inflation and stifled growth.

The losses could be massive, eating into everything from the price of a Thanksgiving turkey to consumer bills for heating homes this winter. In the United States alone, a higher cost of diesel would mean $100 billion in damage to the economy, according to Mark Finlay, an energy fellow at Rice University’s Baker Institute for Public Policy.

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“Anything and everything that moves in our economy, diesel is there,” Finley said. “Moving things is one thing. People who could potentially freeze to death is another.”

In the United States, diesel and heating oil inventories are at an all-time low for this time of year in data going back four decades. Northwest Europe also faces a buffer low — inventories are expected to hit a low this month and then drop further by March, shortly after the start of sanctions that will cut off the region from Russian naval supplies. Global export markets have become so tight that poorer countries like Pakistan have shut down, with suppliers failing to book enough shipments to meet the country’s domestic needs.

“It’s definitely the biggest diesel crisis I’ve ever seen,” said Dario Scaffardi, a former CEO of Italian oil refiner Saras SpA who spent nearly 40 years in the industry.

Diesel in the New York Port spot market, a key benchmark, is up nearly 50% this year. The price reached $4.90 a gallon in early November, about double last year’s levels.

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Even more telling is the diesel-ruled premium. Spreads for fuel versus crude oil are widening, a sign of how tight refining capacity is, and for supplies to be delivered next, confirming that traders are desperate to get their hands on things now. In northwest Europe, diesel futures cost about $40 a barrel more than Brent, against a five-year seasonal benchmark of just $12. New York diesel futures for December delivery are trading about 12 cents higher than those for January. That compares to a premium of less than a cent at this time last year.

What causes the deficiency?

There are major limitations on refining capacity globally. Crude oil supplies are already somewhat tight. But the bottleneck is most severe when it comes to converting that raw commodity into fuels like diesel and gasoline. In part, that’s because of the pandemic, after shutdowns decimated demand and forced refiners to close some of their less profitable plants. But the looming shift away from fossil fuels has also dampened investments in the sector. Since 2020, US refining capacity has shrunk by more than 1 million barrels per day. Meanwhile in Europe, shipping unrest and labor strikes affected refinery production.

Things could get even more dramatic with the European Union’s looming shift away from Russian supplies. Europe is more dependent on diesel than any other country in the world. Roughly 500 million barrels a year are delivered by ship, and about half of that is normally loaded at Russian ports, according to data from Vortexa Ltd. The United States has also halted imports from Russia, which was a big supplier to the East Coast last winter.

Also a background disturbance is the market structure known as underdevelopment, when premiums are higher for supplies with quick deliveries than for long-term ones. Not only was this spread unusually large, but the delay was unusually long. This backward market structure motivates suppliers to sell now rather than holding on to the product to build up inventories.

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emergency protocols

In the US, shortages along the East Coast led to rationing of suppliers and initiation of emergency protocols, and winter hasn’t even begun.

The Northeast, the most densely populated corner of the United States where temperatures are often below freezing during severe winters, is also the most dependent on heating oil to keep homes warm. (Diesel and heating oil are the same product in the United States, but taxed differently.) Even in the best-case scenario, consumers there will be saddled with their highest energy bills in decades this winter. Already, the government has nearly doubled its estimate for the increase, projecting that families who depend on heating oil can expect to pay 45% more than last winter, up from an October estimate of 27%.

A prolonged diesel shortage across the United States is certainly unlikely since the country is a net exporter of the fuel. But local outages and price hikes are likely to become more frequent, especially on the East Coast, where pipeline scarcity is creating massive bottlenecks. The region relies heavily on the Colonial Pipeline which is often full. A century-old shipping law, known as the Jones Act, further complicates the movement of domestic fuels and encourages Gulf Coast producers to prefer exports over supplying the domestic market.

“big dent”

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From early February, EU sanctions will ban Russian naval deliveries. Those Russian barrels must be replaced somehow if the region’s economy is to continue to function as it does today. How this will happen and whether it is not yet clear.

The cold winter will also exacerbate the problems in Europe. Across the northwest, inventories are expected to drop to 211.9 million barrels in March, the month after the EU sanctions kicked in, according to consultancy Wood Mackenzie Ltd. That would be the lowest in records since 2011.

With the sanctions deadline fast approaching, Europe still imports a huge amount of diesel from Russia. It also withdraws huge amounts from Saudi Arabia, India and others. As a result, waterborne imports for the month of October hit their highest levels since at least the beginning of 2016, according to data from Vortexa compiled by Bloomberg.

Germany was already experiencing tightness, with lower Rhine levels hampering deliveries and curtailing production, while refineries in neighboring Hungary and Austria also suffered significant disruption. French production was stifled by a wave of workers’ strikes over wages.

“If Russia isn’t a supplier anymore, it’s going to put a huge, massive dent in the system, and it’s going to be really hard to fix,” said Scavardi, the former CEO of Saras.

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Poor countries suffer

Global fuel pressure has made it more profitable for exporters such as China and India to send shipments to countries in Europe that can pay hefty premiums. Overall fuel exports from China are expected to rise by 500,000 barrels per day to nearly 1.2 million barrels by the end of the year, according to industry consultant FGE.

It remains to be seen if this will be enough to close the global supply gap, meanwhile the poorer countries who cannot afford higher prices suffer.

The energy minister of cash-strapped Sri Lanka said it is struggling to afford global fuel prices and is unable to secure adequate supplies. Thailand has extended a diesel tax cut in a bid to protect consumers from higher prices, with the government predicting the move will cost about $551 million in lost revenue. Vietnam is looking to enact emergency measures, including using its central bank to open more loans to domestic fuel producers in order to boost supplies.

The diesel crisis is “damaging the global economy,” said Amrita Sen, head of research at Energy Aspects Ltd.

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5 takes from Wall Street analysts

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There is no doubt that Costco (cost) had a good year.

For one thing, Yahoo Finance has outperformed the 2022 bear market — the stock is down 13% so far this year to about $495 a share compared to a 15% drop for the S&P 500 (^ The Salafist Group for Preaching and Combat) as of December 2. In addition, many investors love the big retail store because of its die-hard clientele and solid balance sheet.

Of course there are some critics. They worry about the company’s high valuation amid scary times in the markets and the economy.

So what are the prospects for COST? Yahoo Finance recently spoke with five Wall Street securities analysts to get their thoughts. Here are their edited excerpts:

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Evan Feneth, Tigress Financial Partners

What’s good about Costco stock: The Company consistently reports strong same-store sales growth in both good and challenging retail environments. Costco remains well-positioned to see increases in traffic online and in stores, largely because it provides consumers with an important low-cost value proposition. In addition, Costco is taking advantage of its expanding service offerings, including travel, home improvement, and expanded business services. Renewal rates are also at an all-time high.

What does it matter: What is always of concern are changes in consumer spending trends in light of economic changes.

Rating / Target Price: Buy / $678

Final thoughts: Costco continues to see the good times as consumers spend more on discretionary items (such as air travel). In tough economic times consumers are looking for bargains. You can see this in the strength of memberships that continue to grow. Their customers pay for the opportunity to shop there and believe it is worth the fee because of Costco’s strong value proposition.

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Oliver Chen, Quinn

What’s good about Costco stock: Costco continues to be a leading consumer brand for us — what we’re seeing is the company is well positioned for strong first-class performance given the encouraging historical consistency and unique membership model that focuses on deep value. We especially like Costco’s differentiation with its Kirkland Signature private label and limited assortment across 3,500 stock keeping units (SKU’s), which gives the company massive buying power.

What does it matter: In our view, the key arguments about Costco remain: (1) the emergence of more stringent comparable metrics as the company continues to drive steady growth; (ii) the evolution of consumer behaviors, the company’s ability to maintain loyalty, and consistent membership metrics; (3) High current given rating The price-to-earnings ratio, which contracted five percent from its three-year average.

Rating / Target Price: Exceed / $650

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Final thoughts: We believe the company has both the ability and experience to drive continued strong retail execution and believe core competencies. One of its main strengths is that Costco is one of the few American concepts that is relatively successful on a global scale. Also: Its size makes it one of the best buys with great buying power across a limited selection of items. Finally, Costco’s unique vertically integrated supply chain delivers outstanding distribution and cost effectiveness, (for this reason) we maintain a “Superior” rating.

Michael Baker, DA Davidson

What’s good about Costco stock: Inventory positives include significant and consistent same-store sales growth.

What does it matter: Our biggest concern and the reason we have a neutral rating is the above average COST multiplier. We also saw some declines in gross margin.

Rating / Target Price: Neutral/ $455

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Final thoughts: Costco is a top-tier operator with strong sales and earnings trends and forecasts. But we think that’s reflected in the current share price.

Chuck Groom, Gordon Haskett Research Consultants

What’s good about Costco stock: Consistency of the underlying comp business month to month, usually driven by healthy traffic trends. Also, the membership fee stream is an annuity for the long haul. The balance sheet is also very good with low leverage and ample cash.

What does it matter: Valuation has always been a sticking point for investors, but that’s been the case for the more than 20 years Costco has covered it.

Rating/Price Target: Buy / $600

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Final thoughtsCostco does what’s right for its customers first, employees second, and shareholders third. This approach makes it one of the best retailers we cover.

Corey Tarlow, Jefferies

What’s good about Costco stock: Well…for now [economic] The background, it’s a business with a really good standing. It has a membership model that drives recurring revenue; Very stable margins and predictable cash flow. It’s a business in times when inflation is at 8%, more consumers are looking for ways to save money. And Costco is a great way to do that at better prices than most other retailers in the US, it’s a company that also has several growth drivers (such as) a potential membership fee increase.

What does it matter: It’s been a really strong year this year. So this year’s winding may be a little tricky hurdle next year. But it is nonetheless something that I think Costco will be able to achieve.

Rating / Target Price: Buy / $610

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Final thoughts: It’s a business that’s really well-positioned in the current environment. We do not know what to expect from a macroeconomic point of view in the future. But it’s a business that, like I said, performs admirably in the good times, and even in the bad. It’s a stock you want to own today.

More Yahoo Finance coverage for 2022:

Dylan Kroll is a reporter and researcher for Yahoo Finance. Follow him on Twitter at @tweet.

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TherapeuticsMD enters into product licensing agreements for Mayne Pharma

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The Minister of the Interior welcomes the report calling for the suppression of asylum seekers

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Soella Braverman, Britain’s Home Secretary, has welcomed a report calling for a massive crackdown on asylum seekers who come to Britain using illegal methods, including placing them in indefinite detention.

Braverman is under increasing pressure from Tory MPs to control migration across the Channels in small boats, with 44,000 people arriving in Britain using the route already this year.

On Monday, a centre-right think tank will publish a report saying that “if necessary” Britain should change its human rights laws and withdraw from the European Convention on Human Rights in order to tackle the problem.

Refugee groups said the proposals, if implemented, would be a major breach of Britain’s international obligations and tarnish its reputation as a haven for desperate people seeking refuge.

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The Center for Policy Studies report, co-written by Nick Timothy, Theresa May’s former chief of staff as prime minister, calls for new laws that would make it impossible to seek asylum in Britain after traveling from a safe country, such as France.

It also calls for a ban on immigrants entering the country using illegal routes from settling in Britain, and for the “expedited transfer abroad” of such immigrants to Rwanda or other third countries willing to take them.

Timothy and co-author Carl Williams say Britain may have to leave the European Court of Human Rights to allow detention and transfers abroad. They also want to fix May Modern slavery lawthe main legislative tool in the UK to deal with abuses in supply chains, to avoid its alleged misuse.

They argue that all future grants of asylum should only take place through formal resettlement routes and no more than 20,000 people per year.

The issue of small boat immigration became a major political problem for the Conservative government, particularly in the working class seats in the North and Midlands.

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Braverman said she did not agree with “everything” in the report but said she welcomed it as “a vital and necessary contribution to the policy discussion about what can be done to address crossings.”

In the introduction to the report, she said: “There is a range of policy options. With clear thinking, political will and determination, we can defeat the smuggling gangs, and against those who abuse our system, and we will comprehensively address the problem of small boats.”

Tory MPs are tired of the tough talk of home ministers and want action from the government to tackle the surge in migrant crossings. Braverman’s allies have refused to say which parts of the CPS report they support.

They were also described as “wrong”. a report The Sunday Times reported that ministers were drafting laws to prevent illegal asylum-seekers from settling in Britain.

For his part, Robert Jenrick, the Immigration Minister, said it was “very difficult” to see how Albanians, who are currently The largest number of small boat crossingsthey must be able to successfully claim asylum when they come from a ‘clearly’ safe country.

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Inver Solomon, chief executive of Refugee Council, a UK charity, said of the CPS report: “The policies outlined in this report will lead to the UK withdrawing from the Refugee Convention, which we signed up to just over 70 years ago.”

Yvette Cooper, the shadow home secretary, said the government’s asylum policy was “a mess” and based on “a headline-hunting”.

“They have to adopt the Labor plan including a specialized unit in the National Crime Agency to go after the criminal gangs that lead this, and take immediate action to end the backlog and chaos from the asylum system,” she said.

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