Ukraine issues may threaten disruption of many markets

Power Play!

Oil is on the rise and worries about ring power prices are in play after Russia shows no signs of easing up on its Ukrainian ambitions. It seems that over the weekend the threat of sanctions did little to thwart Russian President Vladimir's Putin's lust for the Ukraine. Russian planes violating Ukrainian air space and thugs taking hostages and calling them prisoners of war suggests that this could lead to a scenario where we could see the threat of disruption of a wide range of commodities. Russia is exposing the weakness of President Barrack Obama who now has to ensure the rest of Europe and Asia that he really is tough under the right circumstances.

The tensions are overshadowing the fact that the United States is awash in Crude (NYMEX:CLM14) supply and the fact that Libyan oil may be soon back onto the market. The tensions are keeping oil supported but in a range that will lead to some very tight trading. Fears that if Russia cuts supply of natural gas (NYMEX:NGM14) to Europe will cause the EU to hoard oil and other products.

We are seeing the impact of these Russian and Ukrainian fears in the grain markets as U.S. grain futures rose across the board led by wheat prices that hit a four-week high. Russia is the fifth largest exporter of wheat after USA, Australia, Canada and the European Union. In 2012 Russia produced 11.2% of world's barley, 5.9% of wheat, 4% of milk and milk products and 3% of sugar and poultry.

Gold (COMEX:GCM14) and silver prices could break out if Russia moves to invade Ukraine. Russia produces around 41% of the world's palladium, so that as well as platinum will rise.

The LA Times in a must read is talking about the rising cost of Electricity! They write "As temperatures plunged to 16 below zero in Chicago in early January and set record lows across the eastern U.S., electrical system managers implored the public to turn off stoves, dryers and even lights or risk blackouts. A fifth of all power-generating capacity in a grid serving 60 million people went suddenly offline, as coal piles froze, sensitive electrical equipment went haywire and utility operators had trouble finding enough natural gas to keep power plants running. The wholesale price of electricity skyrocketed to nearly $2 per kilowatt hour, more than 40 times the normal rate. 

The electrical system's duress was a direct result of the polar vortex, the cold air mass that settled over the nation. But it exposed a more fundamental problem. There is a growing fragility in the U.S. electricity system, experts warn, the result of the shutdown of coal-fired plants, reductions in nuclear power, a shift to more expensive renewable energy and natural gas pipeline constraints. The result is likely to be future price shocks. And they may not be temporary.

One recent study predicts the cost of electricity in California alone could jump 47% over the next 16 years, in part because of the state's shift toward more expensive renewable energy. In fact, the price of electricity has already been rising over the last decade, jumping by double digits in many states, even after accounting for inflation. In California, residential electricity prices shot up 30% between 2006 and 2012, adjusted for inflation, according to Energy Department figures. Experts in the state's energy markets project the price could jump an additional 47% over the next 15 years. The problems confronting the electricity system are the result of a wide range of forces: new federal regulations on toxic emissions, rules on greenhouse gases, state mandates for renewable power, technical problems at nuclear power plants and unpredictable price trends for natural gas. Even cheap hydro power is declining in some areas, particularly California, owing to the long-lasting drought.

New emissions rules on mercury, acid gases and other toxics by the Environmental Protection Agency are expected to result in significant losses of the nation's coal-generated power, historically the largest and cheapest source of electricity. Already, two dozen coal generating units across the country are scheduled for decommissioning. When the regulations go into effect next year, 60 gigawatts of capacity—equivalent to the output of 60 nuclear reactors—will be taken out of the system, according to Energy Department estimates.

Moeller, the federal energy commissioner, warns that these rapid changes are eroding the system's ability to handle unexpected upsets, such as the polar vortex, and could result in brownouts or even blackouts in some regions as early as next year. He doesn't argue against the changes, but believes they are being phased in too quickly.

The federal government appears to have underestimated the impact as well. An Environmental Protection Agency analysis in 2011 had asserted that new regulations would cause few coal plant retirements. The forecast on coal plants turned out wrong almost immediately, as utilities decided it wasn't economical to upgrade their plants and scheduled them for decommissioning.

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