Solwd

Oil prices are dropping this morning after the weak ISM Services print, erasing the overnight gains following API’s report of inventory draws across all cohorts. However, prices remain up notably on the week, holding the post-OPEC+ production-cut surprise gains.

Additionally, a weaker dollar has helped to boost the allure of commodities priced in the US currency.

API

• Crude -4.346mm (-7.5mm exp)

• Cushing -1.035mm

• Gasoline -3.97mm (-1.3mm exp)

• Distillates -3.693mm (-140k exp) – biggest draw since Oct

DOE

• Crude -3.739mm (-7.5mm exp)

• Cushing -970k

• Gasoline -4.119mm (-1.3mm exp)

• Distillates -3.632mm (-140k exp) – biggest draw since Oct

The official EIA data confirmed API’s overnight with draws across the board. Distillates saw biggest drop in stocks since Oct ’22.

Source: Bloomberg

Interesting that as soon as the so-called “adjustment factor” collapses, we get draws galore?!

Source: Bloomberg

Even more interesting, at a time when the Biden admin is supposed to be refilling the SPR, they actually drained it (admittedly by a little) for the first time since Jan 6th. No wonder the Saudis were pissed…

Source: Bloomberg

Cushing saw stocks decline for the 5th straight month…

Source: Bloomberg

US crude production was flat at 12.2mm b/d, even as rig counts continues to trend lower…

Source: Bloomberg

WTI is holding around the $80 level after slumping yesterday (ISM Manufacturing, JOLTS) and this morning (ISM Services)

For now, the oil market remains “flush” with inventories, said Manish Raj, managing director at Velandera Energy Partners. However, the announced output cuts will “turn the market to a deficit in the second half.”

By Craig Fuller, CEO of FreightWaves

The freight market downturn is a year old. When will the market turn around?

It has been a year since I wrote “Why I believe a freight recession is imminent.” The article, published on March 31, 2022, stated my case for why I thought the U.S. trucking market was headed for a significant downturn. 

The information in the article was based on analysis from SONAR, FreightWaves’ high-frequency freight data and price reporting platform. SONAR is the market’s leading freight market analytics and price reporting system. 

At first, there was a great deal of vitriol aimed at the FreightWaves analysis and also disagreement about the health of the freight market. This was most pronounced coming from asset-based truckload carriers that predominantly operate in the contract market. The downturn, they believed, was a spot market phenomenon that wouldn’t impact them. 

Others contested the SONAR data and the FreightWaves staff analysis because they were using lagging indicators and government data. These tools have consistently proved to have little value and do not provide actionable insights that participants can use to manage their business — as SONAR does. Sure, they may provide some level of insight about what happened six months ago, but in the freight business, that might as well be a lifetime ago. 

The freight market is one of the most volatile markets on the planet. Hot markets can turn ice cold in a flash, particularly after the federal government and central bankers flooded our economy with so much liquidity and then proceeded to institute the fastest monetary tightening cycle in history. 

Hindsight is 20/20, and now the debate over the freight market downturn is a thing of the past. The freight recession has come, and carriers, regardless of whether they operate in the contract or spot markets, are having to contend with it. 

Executives of both carriers and brokers who we’ve spoken with have said the current freight market is among the most challenging of their careers and this is supported by the same SONAR data that was among the first to signal a sharp downturn. 

The last freight recession took place in 2019. It was called a “trucking bloodbath,” as excess capacity flooded into the market in the wake of the ELD mandate. Carriers operating on the edge couldn’t survive, particularly those operating strictly in the spot market. At one point, FreightWaves covered 10-plus bankruptcies per week. 

Freight market conditions are a function of the balance of supply and demand and the build-up of excess capacity is the most probable cause of the trucking boom-and-bust cycle. 

As we enter the second quarter of 2023, it appears that the freight market may be worse than the freight recession of 2019, as tender rejections are on the verge of dropping below 3% (now 3.05%). The low in 2019 was 3.86%.

A second trucking bloodbath? 

A second “trucking bloodbath” — something that we predicted in March 2022 — was slow to come. Truckload carriers had built strong balance sheets during the COVID super-cycle in freight; most were able to withstand 2022’s most challenging conditions. 

In March 2023, however, that changed. FreightWaves started to receive alerts from sources about a number of overnight shutdowns or carrier wind-downs that only happen when conditions are suddenly bleak. 

FreightWorks Transportation, a North Carolina truckload carrier with 200 trucks, announced it was shutting down on March 6. An executive from the carrier suggested that a large, long-term shipper suddenly pulled freight from the company and gave it to another carrier. This set off a series of cascading events that forced it to wind down its operations. 

On March 22, FreightWaves reported that Flagship Transport, a Miami-based carrier with 455 trucks under contract, suddenly stopped paying its bills, abruptly shuttered and stopped answering calls from drivers. This sudden shutdown is sadly all too common in the trucking industry. 

On March 24, FreightWaves reported that another Miami-based trucking company, Soler & Soler Hauling with 42 drivers, filed for bankruptcy. The company had a CDL training school but was also plagued with a number of safety violations. 

Often, carriers living on the edge are the most vulnerable in market climates like the one that our industry is facing. A sharp downturn does clean up some of the carriers with questionable operations, which are usually obvious when their safety records are reviewed. 

What about contract rates? 

With tender rejections so low, spot rates are unlikely to trend up. What does this mean for trucking contract rates? 

Because trucking capacity between contract and spot is fungible, the spread tells us what we need to know about the direction of contract rates. 

Contract rates and spot rates should trade within a tight range. Spot rates “pull on contract rates.” 

If spot rates are much higher than contract rates for a few months, they will “pull up” contract rates. If spot rates are much lower than contract rates for a period of time, they will pull down contract rates. 

Removing fuel surcharges entirely from both indices, the pre-COVID spread was in a range of -$0.33 to -$0.50/mile. In other words, before the pandemic, it was $0.33 to $0.50/mile cheaper to move a truckload of freight in the spot market rather than by contract. 

Today, that spread is -$0.86/mile. As long as this spread is so wide, shippers will continue to look to the spot market for capacity solutions and carriers will seek to replace any spot loads with contract rates, even if they have to bid contract rates at a cheaper rate than they have bid historically. 

Eventually, this gap between spot and contract rates should converge within a historical range. This is RFP award season and shippers are going to place contracted freight with carriers that bid closer to the spot rates they are currently paying. 

Truckload carriers should prepare for a brutal bid season. Shippers are going to claw back most of the contract rate gains they paid during the pandemic.

Truckload volumes match 2018 levels, a good year for trucking. But that isn’t a good thing. 

Trucking tender volumes are currently running at 2018 levels. Tender volumes track the number of truckloads electronically offered by shippers to carriers in the contract market. The white line in the chart below represents 2023, while the yellow line represents 2018. Orange represents 2019. 

2018 was a good year for trucking, but with so much capacity added over the past five years, a reset to those levels is not cause for celebration. 

According to the Federal Motor Carrier Safety Administration, the number of trucks in the for-hire market is up 29% since early 2018. It will take time to bleed off excess capacity. 

No one really knows what direction the U.S. economy will head during the next three quarters of 2023, but there is plenty of reason to expect that the “Great Purge” in trucking will continue for the foreseeable future.

Wisconsin’s Supreme Court is now controlled by a progressive majority after former Milwaukee County Judge Janet Protasiewicz defeated former Justice Daniel Kelly, tipping the balance from a 4-3 conservative majority to a 4-3 progressive majority.

Protasiewicz ran on a platform to “restore integrity to the Wisconsin Supreme Court, and get politics out of the courtroom.”

“We must restore confidence that judges aren’t just trying to reach their favored outcomes, but actually applying the law and the constitution,” she said on her campaign’s website, adding that “our most closely-held constitutional rights are under attack by radical right-wing extremists.”

The race was believed to be the most expensive judicial state race ever, and will likely impact the future of abortion laws in the state.

We couldn’t mobilize votes or even $10 million for a CRITICAL race in Wisconsin.

We’re going to get our doors blown off in 2024. It will be worse than last time. And in the end, it will be a good thing. We need more pain. We aren’t in enough pain yet to improve. https://t.co/KVwsMVgUON

— Jesse Kelly (@JesseKellyDC) April 5, 2023

As the Epoch Times notes,

Wisconsin is one of more than a dozen states whose Supreme Court justices are directly elected, and victors get 10-year terms. While the races are technically nonpartisan, political parties make their support for candidates quite clear.

According to the Brennan Center for Justice, this year’s election expenditures reached $28.8 million as of March 29. The previous high for spending on a state judicial battle was $15.4 million in an Illinois contest in 2004.

This election is likely to determine how the court will rule on legal challenges to Wisconsin’s 1849 statute prohibiting abortion, which was implemented after the reversal of Roe v. Wade by the U.S. Supreme Court in 2022.

Protasiewicz strongly supports liberalizing abortion access, earning an endorsement from the pro-abortion advocacy organization Emily’s Choice, which “backs Democratic women candidates who support abortion rights.”

The organization said in its endorsement statement that this was “the first time in its 38-year history” that it was endorsing a candidate in a state judicial race.

At her primary victory celebration on Feb. 21, Protasiewicz told supporters that in the upcoming general election, “I’ll be running against someone who doesn’t think women get to make their own reproductive rights,” the Milwaukee Journal Sentinel reported.

“I will guarantee you that my opponent, if elected, will uphold the 1849 near-total abortion ban,” she said.

According to The Washington Post, Protasiewicz also feels that the state’s election maps are “rigged” and that people are very anxious about the 2024 presidential election and whether or not it will get into the Supreme Court chamber.

Conservative former Wisconsin state Supreme Court Justice Daniel Kelly, who came in second with almost 25 percent of the vote, calls himself a “strict constructionist.”

Kelly campaigned on the belief that state government should pass laws and the court should interpret them and not inject personal political ideas into the courtroom.

Kelly’s campaign website promised to “preserve constitutional rights, uphold the rule of law, and prevent judicial activism” if elected.

Conservatives have enjoyed a 4–3 majority on the Wisconsin Supreme Court during the last decade. The election was held to fill a vacancy left by Patience Roggensack’s decision not to run for reelection.

The outgoing justice is nearing the end of her second 10-year term.

Authored by Jonathan Turley,

Oscar Wilde once said “The only way to get rid of a temptation is to yield to it. Resist it, and your soul grows sick with longing for the things it has forbidden to itself.”

With the release of the indictment of former President Donald Trump, Manhattan District Alvin Bragg has revealed himself as a follower of the Wilde school of legal thought. Bragg knew that he had no criminal case against Trump. However, after running on bagging Trump for some crime (any crime), Bragg knew that many would not care if he had a basis for a criminal charge. He would be lionized to be the first person to ever indict a former president in the blind rage against Trump.

After charging Trump with 34 counts, Bragg insisted that he will convict Trump of the “crime to promote a [political] candidacy through unlawful means.” He insists that he will prove “attempts to violate state and federal election laws.”

For months, many have raised objections to the effort of Manhattan District Attorney to use a flawed legal theory to essentially litigate a federal election violation that the Justice Department opted not to charge. This bootstrap theory has been widely criticized, but many in the media sought to cut off that debate by suggesting that Bragg might be basing his prosecution on some unknown crime. Last week, Michael Cohen’s attorney Lanny Davis went as far to “warn all the pundits and everyone speculating…that there are lots of facts, lots of documents, lots of evidence of multiple crimes.”

We now have the indictment, and it is basically what many of us anticipated. It is a series of stacked counts of falsifying business records for the purpose of influencing the election. The indictment seems to address the lack of legal precedent with a lack of specificity on the underlying “secondary” felony. Bragg has done nothing more than replicated the same flawed theory dozens of times. This is where math and the law meet. If you multiply any number by zero, it is still zero.

If the New York bench retains any integrity, this case will be thrown out as legally improper with an admonition to Bragg and his office for politicizing the criminal justice process.

That, however, may be asking a lot of state judges who are elected on both the trial and appellate levels. They also may prove to be lawyers on the Wilde side.

The cost, however, to the legal system will be immense. In a single indictment, Alvin Bragg bulldozed any high ground that the Democrats had after January 6th. He has fulfilled the narrative of the Trump campaign by supplying a raw and undeniable example of the politicization of the legal system. What is most shocking is that this attack on the rule of law was met with the rapturous applause of many, including lawyers and legal pundits. They not only will ignore the affront to the integrity of our legal system, but celebrate its demise.

Bragg himself threw a flag on the effort to indict Trump being pushed by a lawyer brought in as a special assistant district attorney for that purpose.

Mark F. Pomerantz and his colleague Carey R. Dunne resigned — and their resignation letter was then leaked to an eager media. Pomerantz then took a step that floored many of us: he wrote a tell-all book based on the still ongoing investigation.However, Pomerantz admits that career prosecutors balked at his radical proposals to find a crime — any crime — to nail Trump. That included an entirely bonkers money laundering charge against Trump where he would be the victim of an extortion effort. In his book, Pomerantz admits that “many of the lawyers were relentlessly negative.” Some prosecutors were clearly so upset by his efforts that they “defected” from the team. He also admitted that Bragg told him “that the consensus among the group of prosecutors with whom he had been speaking was not to go forward.”

Despite objections from his colleagues who said he was undermining their efforts, Pomerantz published a book making the case against an individual who was not charged, let alone convicted. It was a grossly unprofessional and improper act. It also worked. Bragg caved to the overwhelming pressure that followed. If figures like Pomerantz was going to yield to temptation, why shouldn’t he?  After all, no one wants to be the last ethical lawyer when everyone else is cashing in.

I remain hopeful that there remains a modicum of judicial integrity in New York to stand against this effort. However, this is a defining moment for many who have rationalized this abuse of the criminal justice system. For those attorneys, they have reached the point described by Robert Oppenheimer after the development of the atomic bomb. He stated “In some sort of crude sense which no vulgarity, no humour, no overstatement can quite extinguish, the physicists have known sin; and this is a knowledge which they cannot lose.”

The same is true for many in our profession. While some of us have warned that Mar-a-Lago could present a serious threat to Trump, we have warned that the Bragg prosecution is the denial of the core legal principle of blind justice. This expensive, drawn out effort would not have occurred for anyone other than Donald Trump. It is not just selective prosecution, it is exclusive prosecution for Trump and Trump alone.

There is a good-faith debate over whether the President should be charged over conduct related to Mar-a-Lago and possible obstruction of justice. This is not that case.

For those lawyers applauding this ignoble moment, this is our sin as a profession, and it is “knowledge which they cannot lose” in the years to come.

There was an awkward scene that played out at NATO headquarters in Brussels on Tuesday during the formal ceremony which made Finland the alliance’s 31st member. With top Finnish officials in attendance, Ukraine’s foreign minister was also there, alongside Secretary of State Antony Blinken. A group of protesters reportedly chanted just as Finland’s flag was raised: “Ukraine in NATO!”

According to Politico, the Ukrainian top diplomat took the opportunity to state Kiev’s goal: 

Arriving at NATO headquarters in Brussels on the day Finland formally became a member of the alliance, Ukrainian Foreign Minister Dmytro Kuleba offered congratulations and declared that “Ukraine is aiming at reaching the same goal, becoming a full member of NATO.”

“It will be one of the topics of our conversations here in Brussels, of how can we move forward,” he said.

“While we appreciate the practical support we receive from the alliance,” FM Kuleba continued, he emphasized: “there is no better strategic solution to ensuring strategic security in the Euro-Atlantic region than the membership of Ukraine in the alliance.”

This put pressure on Stoltenberg to address the elephant in the room, and the question was asked by a journalist from a Ukrainian outlet during a press conference. Below is how the NATO chief responded:

He added that Kyiv can win the war and become a full-fledged NATO member one day.

Responding to the Kyiv Independent at a news conference, Stoltenberg said that “NATO’s position remains unchanged and that Ukraine will become a member of the alliance.”

NATO’s long-time leader emphasized that the “main focus” now is to ensure that Ukraine remains a sovereign, independent nation in Europe. “The first step toward any membership of Ukraine to NATO is to ensure that Ukraine prevails, and that is why the U.S. and its partners have provided unprecedented support for Ukraine,” he added.

Of course, all of this is dangerously premised on what would in effect be Russia’s collapse, given the nuclear-armed superpower would never allow Ukraine to become a full-fledged NATO member, even if to some degree its militarization by NATO has already taken place throughout the conflict.

Ukraine will become a member of NATO — Stoltenberg

Wasn’t this just Kremlin propaganda? pic.twitter.com/SCSJI7BQPy

— levi3853 (@Levi_godman) April 5, 2023

And from the Western alliance’s point of view, accepting Ukraine into NATO would automatically trigger Article 5 common defense, which is why it doesn’t induct nations with simmering conflicts on their borders (or especially not while they’re in the midst of a hot war). This means that certainly there would be at least a handful of holdout nations reluctant to approve any future application by Ukraine, given it would mean that nuclear conflict with Russia would be on the horizon.