As Treasury Secretary Janet Yellen predicts that high gas prices are likely to persist, more and more people are wondering what is causing the rise besides general inflation. The US Energy Information Administration explains that the retail price of gasoline is made up of four basic cost elements: crude oil, refining, distribution and marketing, and taxes. The prices we quote here in Futures File for gasoline refined in New York Harbor do not include retail marketing costs, the cost of getting fuel to your local pump, or state taxes or federal. The cost of crude oil represents approximately 54% of the retail price of unleaded gasoline, the refining component 14%, distribution and marketing 16% and taxes 16%. Unleaded gasoline for July delivery fetched $4.203 a gallon on Friday afternoon, up about 10 cents on the week.
Ukraine cannot export grain
In addition to production problems related to both the war and the dry weather, the storage and export of wheat from Ukraine was further blocked by Russia. Early last week, Russia bombed two major storage facilities at Black Sea ports and halted shipping with naval blockades.
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With Russia and Ukraine normally exporting a third of the world’s grain through the Black Sea, restoring transport by boat or rail is becoming more urgent every week. A worsening drought in Europe, particularly in France, has exacerbated the shortage of wheat, just when this crop is desperately needed to feed this great region of the world. The drought in Argentina has also added fears of a global food shortage. Friday’s USDA supply and demand report was close to expectations. Global maize ending stocks were actually better than the average forecast.
Wheat for July delivery was roughly unchanged on the week, July corn at $7.70 and soybeans for July delivery traded at $17.50 a bushel.
Inflation explodes by 8.6%
The federal government on Friday released the most-watched inflation benchmark, the consumer price index (CPI). The CPI rose at a surprisingly high rate of 8.6%, another 40-year high, including a sharp rise in food and energy prices. The report is a grim outlook for the Federal Reserve, which is already forecasting a half-percent rate hike in June, July and September. Chairman Powell may now have to deal with the possibility of a 0.75% rate hike soon to help temper inflation. Stock indices and Treasury bond futures fell on the worrying news. The June Dow Jones futures contract slipped more than 800 at midday Friday, while the June S&P fell 110 points to 3900.
Opinions are solely those of the author. Walt Breitinger is a commodity futures broker in Valparaiso, Indiana. He can be reached at 800-411-3888 or www.indianafutures.com. This is not a solicitation of a market order to buy or sell.