Cheap gas tomorrow and cheap gas yesterday but no gas at any price today.

Turns out there are worse things than $4 a gallon gasoline.

For instance, there’s driving up to the pump and discovering that there is no gas for sale. Energy shortages are happening across a big swath of the developing world. And it’s occurring not just with gasoline but also with diesel fuel and even electricity.

The reason is very simple: Governments from Russia or China to India to Indonesia to Brazil have pressured or required oil refineries (and other energy companies) to keep consumer prices low even though the costs that they’re paying for oil (and coal) are rising. That’s turned these companies from oil refineries into red ink machines. Not surprisingly they’re reacting to these economics by cutting production– if you lose money on every sale, you’re going to cut volume. Or by exporting gasoline to countries that pay market prices for their petroleum products. And that has resulted in massive shortages of everything from gasoline to diesel fuel to electricity.

The shortages have become large enough to potentially cut economic growth in the economies that the world increasingly counts on for growth—just as central banks are raising interest rates in these economies to slow growth in an effort to fight inflation.

I’d argue that despite all the worry on Wall Street about how higher U.S. energy prices will hurt the U.S. economic recovery, the biggest danger to economic growth from higher oil prices is in those developing economies that are now caught trying to control prices without squashing supply.

Russia, the world’s biggest oil producer, is a good example of how a developing economy can get caught between a rock and a hard place by rising energy prices  Read more

Russia’s ban on wheat exports sets the commodity markets on fire

On August 5, Russia banned grain exports for the rest of the year. Drought has destroyed about 20% of the wheat crop of one of the world’s top wheat exporters. The ban will run from August 15 until December 31. At a minimum.

Wheat prices, already up 70% this summer, climbed again. Wheat was “up” another 8.3% on the Chicago Broad of trade that day.

The ban on Russian exports (Russia exported 21.4 million metric tons of wheat in 2009.) comes on top of prior forecasts for a smaller than expected U.S. corn harvest, and smaller than expected plantings of wheat in Canada due to a wet spring.

Wheat farmers in the United States, Argentina, and Australia will pick up part of the slack—as well as the benefit of higher prices. The wheat harvests in Canada and the European Union are not forecast to be particularly abundant this year.

But the ban on Russian exports isn’t the end of the story. On August 6 Russian Prime Minister Vladimir Putin fueled the speculation that other countries would also end exports when he said that Kazakhstan and Belarus should join Russia’s ban. Kazakhstan exported 7.5 million tons in the 12 months that ended on June 30 and Belarus shipped 400,000 tons, according to the U.S. Department of Agriculture. Another wheat exporter in the area, Ukraine, could well refuse to follow Russia’s lead because of political tensions between the two countries. But formal ban or not, the drought and wildfires that have devastated Russia’s grain crop are likely to reduce supplies from the Ukraine too. That country exported 9.2 million tons of wheat in the 12 months that ended in June.

Global wheat stockpiles aren’t anywhere near danger levels. The forecast now is for the bad weather and the export bans to cut world wheat stockpiles by 2.5% to 192 million tons, according to the International Grains Council.

 But the bans on exports by individual countries have more to do with internal domestic politics than any fear that the world is running out of wheat. Individual countries are trying to head off a surge in food prices that would create a wave of domestic political protest. Peak wheat prices of 13.50 a bushel in February 2008 set off food riots in Egypt, for example. Domestic wheat prices in Russia climbed 19% in the week before the country imposed its export ban.

And the bans have set off a scramble for supply and that has led to the wild surge in wheat and other grain prices on commodity exchanges. For example, Indonesia and Japan, Asia’s two biggest wheat buyers, have started to scour the markets for alternative supplies from the United States, Australia, and Argentina

That has created a psychology of shortage among global commodity traders who are now seeing commodity disasters everywhere. For example on Wednesday August 4 agricultural stocks led the Shanghai Composite Index to a 0.4% gain on speculation that recent floods will lead to a decline in the rice harvest—and higher rice prices. Chinese vice premier Hui Liangyu called on local authorities to increase rice planting after foods damaged more than 7 million hectares of farmland, according to the Xinhua News Agency on August 4.

It’s important to recognize two things about a commodity price surge like this. Read more