FX.co ★ Grave crisis to spark off in 6 months ahead

Citing Leigh Goehring, the CEO of Goehring & Rozencwajg Associates, the black swans of 2022 are far from their completion.

Another crisis is brewing up in the US gas market because global markets are going through the challenge of the geopolitical tensions in Ukraine. Russia's invasion of Ukraine entailed a deficit of oil and agricultural produce. Leigh Goehring predicted a grave crisis that will spark off in the coming 6 months in the US due to sky-high gas prices.

This prediction is a cause for concern because the US will not be able to withstand this crisis because any unpredicted event might entail a shortage in the US gas market in the context that the US has been ramping up its gas exports.

The expert warned that if a high-impact event might occur in North America, the gas market will abruptly turn from a structural proficit into a structural deficit. If it happens, gas prices might skyrocket in the US. Gas prices might triple or even quadruple.

The crucial change in 2022 is export levels. Leigh Goehring noted that the US has evolved from the secondary player in the global export LMG market into the world's largest LNG exporter in the last 6 years. From his viewpoint, US LNG inventories will shrink sharply in the coming 6 months.

High gas prices will deal a blow to the US market as the Federal Reserve desperately wants to stem inflation through aggressive monetary tightening. By late autumn 2022, inflation might surpass 10% due to the potential jump in natural gas prices. Another catalyst is the expected leap in oil prices in the second half of 2022. These two factors in tandem could push inflation toan annual 10%. If the prediction comes true, the US Fed will have to raise interest rates higher.

The economist is concerned not about how the US economy will survive, but what consequences the US Fed will cause by raising its rates by more than 2-3%. When Jerome Powell increased the federal funds rate to 2.25%-2.50% in 2018, this move exposed various problems in the financial system. If he increases interest rates to 2-3% again, the economy will encounter financial problems as well. So, Powell will have to hit the pause button on rate hikes, Leigh Goehringc concluded.