Two years after sacrificing one robot, TEPCO officials have aborted their latest robot mission inside the Fukushima reactor after the ‘scorpion’ became unresponsive as it investigated the previously discovered hole where the core is believed to have melted.

A “scorpion” robot sent into a Japanese nuclear reactor to learn about the damage suffered in a tsunami-induced meltdown had its mission aborted after the probe ran into trouble, Tokyo Electric Power company said Thursday. As Phys.org reports, TEPCO, the operator of the Fukushima nuclear plant, sent the remote-controlled device into the No. 2 reactor where radiation levels have recently hit record highs.

The “scorpion” robot, so-called because it can lift up its camera-mounted tail to achieve better viewing angles, is also designed to crawl over rubble inside the damaged facility.

But it could not reach its target destination beneath a pressure vessel through which nuclear fuel is believed to have melted because the robot had difficulty moving, a company spokeswoman said.

“It’s not immediately clear if that’s because of radiation or obstacles,” she said, adding that TEPCO is checking what data the robot was able to obtain, including images.

…

The robot, 60 centimetres (24 inches) long, is made by Toshiba and equipped with two cameras and sensors to gauge radiation levels and temperatures.

“Scorpion’s mission is to take images of the situation and collect data inside the containment vessel,” TEPCO spokesman Shinichi Nakakuki said earlier.

“Challenges include enduring high levels of radiation and moving on the rough surface,” he said.

Radiation levels inside the reactor were estimated last week at 650 sieverts per hour at one spot, which can effectively shut down robots in hours.

This is not the first robot to become disoriented under the extreme stress of the Fukushima environment…

The robot sent to inspect a reactor’ containment vessel at the Fukushima Daiichi nuclear power plant stopped responding three hours into the operation.

TEPCO hoped to take a look inside the vessel containing one of the three reactors, which underwent a meltdown in the 2011 nuclear disaster.

A group of approximately 40 workers sent the remotely-controlled device, allegedly capable of withstanding high levels of radiation, into the vessel at 11:20 a.m. The robot stopped functioning after covering two thirds of the route at approximately 2:10 p.m., according to the Tokyo Electric Power Co.

But as Michael Snyder recently noted, radiation inside one of the damaged reactors at the Fukushima nuclear power facility has reached an “unimaginable” level according to experts. Because so much nuclear material from Fukushima escaped into the Pacific Ocean, there are many scientists that believe that it was the worst environmental disaster in human history, but most people in the general population seem to think that since the mainstream media really doesn’t talk about it anymore that everything must be under control. Unfortunately, that is not true at all. In fact, PBS reported just last year that “it is incorrect to say that Fukushima is under control when levels of radioactivity in the ocean indicate ongoing leaks“. And now we have just learned that the radiation level inside reactor 2 is so high that no human could possibly survive being exposed to it.

According to the Japan Times, the level of radiation inside the containment vessel of reactor 2 is now estimated to be “530 sieverts per hour”…

The radiation level in the containment vessel of reactor 2 at the crippled Fukushima No. 1 power plant has reached a maximum of 530 sieverts per hour, the highest since the triple core meltdown in March 2011, Tokyo Electric Power Co. Holdings Inc. said.

Tepco said on Thursday that the blazing radiation reading was taken near the entrance to the space just below the pressure vessel, which contains the reactor core.

The high figure indicates that some of the melted fuel that escaped the pressure vessel is nearby.

It is hard to find the words to convey how serious this is.

If you were exposed to a radiation level of just 10 sieverts per hour, that would mean almost certain death. So 530 sieverts per hour is simply off the charts. According to the Guardian, this recent measurement is being described by scientists as “unimaginable”…

The recent reading, described by some experts as “unimaginable”, is far higher than the previous record of 73 sieverts an hour in that part of the reactor.

A single dose of one sievert is enough to cause radiation sickness and nausea; 5 sieverts would kill half those exposed to it within a month, and a single dose of 10 sieverts would prove fatal within weeks.

And the really bad news is that there appears to be a 2 meter hole that was created by melted nuclear fuel “in the metal grating under the pressure vessel in the reactor’s primary containment vessel”.

The following comes from Bloomberg…

New photographs show what may be melted nuclear fuel sitting under one of Japan’s wrecked Fukushima reactors, a potential milestone in the search and retrieval of the fuel almost six years after it was lost in one of the worst atomic disasters in history.

Tokyo Electric Power Co. Holdings Inc., Japan’s biggest utility, released images on Monday showing a grate under the Fukushima Dai-Ichi No. 2 reactor covered in black residue. The company, better known as Tepco, may send in a scorpion-like robot as soon as February to determine the temperature and radioactivity of the residue.

If that isn’t frightening enough, one Japanese news source is reporting that this melted nuclear fuel “has since come in contact with underground water flowing from the mountain side”…

The melted fuel has since come in contact with underground water flowing from the mountain side, generating radioactively contaminated water every day. In order to dismantle the reactor, it is necessary to take out the melted fuel, but high radiation levels inside the reactor had hampered work to locate the melted debris.

If this disaster was just limited to Japan, the entire northern hemisphere would not be at risk.

But that is not the case.

Most of the nuclear contamination from Fukushima ended up in the Pacific Ocean, and from there it was literally taken around the rest of the planet. The following was reported by PBS…

More than 80 percent of the radioactivity from the damaged reactors ended up in the Pacific — far more than reached the ocean from Chernobyl or Three Mile Island. Of this, a small fraction is currently on the seafloor — the rest was swept up by the Kuroshio current, a western Pacific version of the Gulf Stream, and carried out to sea where it mixed with (and was diluted by) the vast volume of the North Pacific.

We don’t know if there is a connection, but it is extremely interesting to note that fisheries up and down the west coast of the United States are failing because of a dramatic decrease in fish populations. Just check out the following excerpt from a story that was posted on January 18th…

U.S. Secretary of Commerce Penny Pritzker today determined there are commercial fishery failures for nine salmon and crab fisheries in Alaska, California and Washington.

In recent years, each of these fisheries experienced sudden and unexpected large decreases in fish stock biomass or loss of access due to unusual ocean and climate conditions. This decision enables fishing communities to seek disaster relief assistance from Congress.

Things are particularly bad up in Alaska, and biologists are “stumped” as to why this could be happening…

In 2016, the pink salmon harvests in Kodiak, Prince William Sounds, Chignik and lower Cook Inlet came in woefully under forecast and stumped biologists as to why.

The estimated value of Kodiak’s 2016 haul was $2.21 million, compared to a five-year average of $14.64 million, and in Prince William Sound the ex-vessel value was $6.6 million, far less that the $44 million five-year average. The total state harvest was the smallest since the late 1970s.

Although state biologists weren’t ready to declare a cause for the poor pink salmon performance, the Commerce Department press release attributed the disasters to “unusual ocean and climate conditions.”

Further south, it was being reported last month that millions of dead sardines are washing up on the shores of Chile.

I could go on and on with a lot more examples like this, but hopefully you get the point.

Something really strange is happening in the Pacific, and a lot of people believe that there is a link to Fukushima.

Not too long ago, I wrote about how the elite of Silicon Valley are “feverishly prepping“, but the truth is that all of us should be. If you need some tips on how to get started, you can find my prepping book right here. Our planet is becoming increasingly unstable, and the Fukushima nuclear disaster is just one piece of the puzzle.

But it is definitely a very important piece. The nuclear material from Fukushima is continuously entering the food chain, and once that nuclear material gets into our bodies it will slowly irradiate our organs for years to come. The following is an excerpt from an absolutely outstanding opinion piece by Helen Caldicott that was published in the Guardian…

Internal radiation, on the other hand, emanates from radioactive elements which enter the body by inhalation, ingestion, or skin absorption. Hazardous radionuclides such as iodine-131, caesium 137, and other isotopes currently being released in the sea and air around Fukushima bio-concentrate at each step of various food chains (for example into algae, crustaceans, small fish, bigger fish, then humans; or soil, grass, cow’s meat and milk, then humans). After they enter the body, these elements – called internal emitters – migrate to specific organs such as the thyroid, liver, bone, and brain, where they continuously irradiate small volumes of cells with high doses of alpha, beta and/or gamma radiation, and over many years, can induce uncontrolled cell replication – that is, cancer. Further, many of the nuclides remain radioactive in the environment for generations, and ultimately will cause increased incidences of cancer and genetic diseases over time.

Are you starting to understand the gravity of the situation?

Sadly, this crisis is going to be with us for a very, very long time.

According to Bloomberg, they are not even going to start removing melted nuclear fuel from these reactors until 2021, and it is being projected that the overall cleanup “may take as long as 40 years”…

Decommissioning the reactors will cost 8 trillion yen ($70.4 billion), according to an estimate in December from the Ministry of Economy, Trade and Industry. Removing the fuel is one of the most important steps in a cleanup that may take as long as 40 years.

The unprecedented nature of the Fukushima disaster means that Tepco is pinning its efforts on technology not yet invented to get the melted fuel out of the reactors.

The company aims to decide on a fuel removal procedure for the first reactor during the fiscal year ending March 2019, and to begin removing fuel in 2021.

A lot of people that end up dying as a result of this crisis may never even know that it was Fukushima that caused their deaths.

Personally, I am convinced that this is the greatest environmental crisis that humanity has ever experienced, and if the latest reading from reactor 2 is any indication, things just took a very serious turn for the worse.

After a week of jawboning markets into believing that the March FOMC meeting is now “live”, it appears China has decided to send a little message.

After weakening the fix by the most since Jan 9th, Chinese money market rates are soaring (1 week CNH HIBOR up 303bps) despite notable liquidity injections…

Of course an unexpected rate hike in March is an implicit tightening of the world’s financial conditions and thus liquidity withdrawal… reversing recent improvements in global dollar liquidity.

As Mark St.Cyr asks (and answers), is China about to begin pre-emptively devaluing the yuan?

Remember when any member of the Federal Reserve, regardless of the action be it a speech, interview, what they had for breakfast et cetera, was met with panting breaths by the financial media? You know, like it was back in the old days, say around 90 days ago more or less. My how time both flies and changes.

Today? Like it or not (and I presume they disdain it) the President as opposed to a Fed. president, has reclaimed all the oxygen, print, airwaves, bandwidth, and more from not only the general news, but the business/financial news as well. I have a feeling that’s not sitting well within the confines of the Eccles Building. Remember: Elites don’t like sharing stages, especially with those they deem as “outsiders.”

So what does the above have anything to do with March and the Yuan you may be asking? It’s this:

You or I may be enjoying a respite from the media where the Fed. (or central bankers in general) aren’t dominating every topic of business/financial discussion. Yet, the one audience I’ll contend that’s still hanging on every syllable for meaning and intent is China. And China is the, and I mean just that – the – only audience that matters. The reasoning is simple:

China, overnight, can bring the entire global markets crashing to its knees via one wrong move, exponentially faster than any Fed. misstep, intentional, or otherwise. Period.

In other words, the Fed. more often than not will signal first (yet they can surprise) and the move would cause turmoil, but the move (and resulting chaos) itself would be more reaction to surprise than substance, where knee-jerk-selling is met with horns-over-hooves buying from Bulls just itching to buy the next dip. (i.e., 1/4% unannounced or unanticipated hike or something else in kind.)

China on the other hand could intentionally devalue the Yuan in whole number, even double-digit percentages, unannounced overnight, and the chaos could quickly transform into unstoppable monetary bedlam. And there’s recent precedent for clues. e.g., August of 2015.

So with the above for context the question that should be first and foremost in everyone’s mind is this:

If China believes there’s a rate hike in March, regardless of what the rest of the world (and academia) might think. Will it force  China into delivering a monetary strike first, and deal with its aftermath later, rather, than simply waiting around to then deal with any potential monetary aftermath or chaos unleashed by the Fed. later?

I believe not only will they move first – the move borders on inevitable.

I base this on no other reasoning than watching the Fed. continuing to throw ever-the-more fuel onto this “monetary powder keg” that brings that response on quicker, rather than later. For the more they pile on, the more this “monetary powder keg” moves from in-need-of-a-match, into self-igniting.

I am of the opinion China’s ever-growing capital flight problems, and more can not withstand another rate hike, let alone one so close after December. And the tell-tale signs for this to be more plausible than not have been occurring in plain sight with far more telling frequency (and I’ll imply: intent) than previously. And the ones who seem to not be reading the “tea leaves” is none other than the Fed. itself.

Here’s some of my reasoning from the article, “Feb’s FOMC Meeting: A Powder keg In Search Of A Match” To wit:

“If China feels that it is in a no-win situation (and it’s easily conceivable using the Fed’s latest words, speeches, shift in policy signaling and a whole lot more) They might decide after coming back from their New Year holiday and – act first – question later.”

Guess what the politburo did when they returned? Hint: Everything and anything but (and it’s a very big but) the one thing they always did in unison – defend the Yuan.

Everything in China went ballistic. Bonds, stocks, commodities, all up. The Yuan? Tumbled to one-month lows.

I’ll contend this is an overt signaling action which screams warning signs everywhere. For why did China, this time, throw so much money everywhere else except for the one place it basically threw the “kitchen sink” at only a month or so prior? (e.g., The Yuan as to strengthen it away from the much dreaded psychological USD/CNH 7.00 cross.)

Was this a test to see what reaction (both market and political) would take place doing something other than something solely Yuan centric? Or, was this a move of desperation as to subside further capital flight? After all: This is precisely the exact opposite of what one should/would do if the plan was to strengthen, rather than weaken one’s currency, correct?

Again: Why would you throw enormous sums of money into actions which not only have a negative effect, but a canceling effect on what you just threw (again) enormous sums of money only a month prior? Does the old joke “Drilling holes in the bottom of the boat to let the water coming in out.” come to mind here? Which is why I’m siding on the side of desperation – first, as opposed to  a test. And here’s why, as stated by economist, and China watcher Andy Xie (one of the few economists I admire) to wit:

“China’s domestic woes and international challenges are largely due to its inefficient system. The government is obsessed with concentrating economic resources in its own hands, and asset markets are like casinos, sucking people in and making them lose money. The government uses its vast resources inefficiently. Hence, China’s currency has a tendency to depreciate.”

Using the above for a prism it’s easy to see how the politburo can do two things at the same time which seem diametrically opposed to what was professed (or signaled) only weeks prior. Why? Because when elites panic – they’ll throw money everywhere and anywhere first, because that’s all they know. And I believe this demonstrates China is beginning to panic.

The real question (and problem) now is: How far, and how fast, from the “beginning” to “end game” they decide to proceed going forward from here? I believe all we have to do is look to our own Fed. for clues, for they appear utterly clueless to what is taking place right before their own eyes.

So what kind of signaling (hence exacerbating China nervousness) is forthcoming from the Fed you ask? Fair question, to wit:

From Reuters™ “Dollar Index Rises As Yellen Signals More Rate Hikes”

“Waiting too long to remove accommodation would be unwise,” Yellen said in prepared remarks before the U.S. Senate Banking Committee, the first of her two-day testimony before Congress.

That was just a few days ago from Fed. chair Janet Yellen’s televised two-day testimony before Congress.

But what went along with the above was what went nearly unreported (as I implied when stating “the old days”) when none other than the Fed’s Dennis Lockhart (another Fed. president retiring at the end of the month) stated in an interview with Bloomberg™ “March meeting is live.”

That’s a lot of confirmation that March is to be considered live, is it not?

As I’ve iterated before, I believe the rest of the world (or “markets”) are still of the idea that the Fed. is once again “crying wolf” as they did all throughout 2016. For China? I think they’re back to an August 2015 frenzy caught between what to do next, never-mind, what not to do. And it’s getting more complicated for them by the day.

Think I’m over exaggerating? Fair point, so here’s just a few “other” headlines China returned from holiday to read and think about, let alone, needing a response to:

“…Trump Backs Japan Over Disputed East China Sea Islands”

Or how about this from the WSJ™ implying further retaliation, “U.S. Eyes New Tactic To Press China”

So where are we now? As I stated in my previous article, I believe it’s all about the Fed. minutes, to wit:

During that time I believe China will wait for the minutes to be released, and if it is made apparent that there was indeed further discussion as to bolster the inferences that the Fed. may be actively considering a path as to embark on a march towards higher rates, along with the thinning of its balance sheet, which would inevitably send the $Dollar rocketing skywards?

They’ll act first and ask (or maybe not) questions later. Sending everything that is now taken for granted in the “markets” (e.g., “It’s good to be long!) into total chaos. All before March 15th’s next meeting. Again, which just so happens to be the exact date originating the “Ides of March” warning.”

If the actions by China after returning from their holiday break are any clue? Than the possibility for a “monetary first strike” is all the more plausible, if not probable, than these “markets” are signaling, let alone contemplating.

China has thrown buckets of capital at not only the Yuan, but its credit markets in unison – and capital flight is accelerating still on all fronts. All while the $Dollar strengthens, and Yuan weakens seemingly against the will of both monetary bodies.

So again, with all the above for context, as I said in the title…

If March Is indeed “live?”  Then so too is the mother of all monetary shocks.

We shall see our first clues for the minutes of the latest FOMC meeting are to be released this week. And if they are indeed “hawkish?” I believe it will force China’s hand before the next meeting. Whether anyone is prepared for it, or not.

And if any clues are to be extrapolated by current “market” action? The answer is self-evident: nobody thinks such a thing is possible anymore, let alone – positioned for it, making things more problematic than they already are. If that’s even possible.

*  *  *

Finally we wonder if – just as was the case after the Shanghai Accord had fulfilled its Plunge Protection Team role in Q1 2016 – whether the same is about to occur…

Notice that the Yuan has been strengthening against the USD for the last 2 months (despite all the gnashing or political teeth over its manipulation). A Fed rate hike is the perfect excuse to let that pretense slide again.

Two years ago, when Saudi Arabia launched on an unprecedented campaign to crush high-cost oil producers, in the process effectively putting an end to the OPEC cartel (at least until last year’s attempt to cut production), it made a bold bet that US shale producers would be swept under when the price of oil tumbled, leading to a tsunami of bankruptcies, as well as investment and production halts. To an extent it succeeded, but where it may have made a glaring error is the core assumption about shale breakeven costs, which as we reported throughout 2016, were substantially lower than consensus estimated.

In his latest note, BofA’s Francisco Blanch explains not only why a drop in shale breakevens costs is what is currently the biggest wildcard in the global race to reach production “equilibrium”, but also why US shale oil production could surge in the coming years, prompting OPEC to boost production in hopes of recapturing market share.  Specifically, Blanch predicts that US shale oil production could grow by a whopping 3.5 million barrels per day over the next five years.

Here’s why: as he explains “many oil companies around the world have survived the price meltdown by bringing down breakeven costs in the last two years.

But what parts of the world can grow output in the years ahead? In BofA’s view, US shale oil producers will come out ahead and deliver outsized market share gains by 2022. Shale oil output in the US may grow sequentially by 600 thousand b/d from 4Q16 to 4Q17 on increased activity in oil rigs and fast productivity gains. Importantly, breakeven costs for key major US plays now stand around the $55/bbl mark.

As crude oil prices recover further, cost reflation may partly offset reduced costs linked to less regulation. So assuming a gradual recovery in oil prices into a long-term average of $60 to $70/bbl, BofA  projects average annual US shale oil growth of 700 thousand b/d in 2017-22, or roughly 3.5 million bpd over the next 5 years.

Shale production could rise even more if prevailing oil prices are higher than $55/barrel. Here is BofA’s sensitivity analysis:

We estimate that US shale production will decline annually by 270 thousand b/d, on average, until 2022 in a $40/bbl WTI environment. At $50/bbl, growth returns, though only at a small average of 240 thousand b/d. Should WTI trade at $60 for the next five years, growth reaches 700 thousand b/d, and at $70/bbl it reaches 950 thousand b/d (Chart 15). It goes without saying that the level of US shale output in 2022  will highly depend on the average price of WTI in the next five years (Chart 16).

It’s not just the US however: in addition to US shale, BofA sees incremental growth in Brazil, Russia, Kazakhstan and Canada over the next five years, driven by giant projects in the Lula, Kashagan or Johan Sverdrup fields. However, many of the gains in supply from non-OPEC non-shale producers will come on the back of investments dating to before the collapse in global oil prices. Meanwhile, countries such as Mexico and the UK will keep facing output declines. All in, BofA projects non-OPEC output to reach 61.7 million b/d by 2022. This equates to 830 thousand b/d of annual average growth in the next five years, or around the 20-year average of 790 thousand b/d (Chart 3).

Put differently, Blanch sees 84% of the incremental non-OPEC supply gains coming from US shale, as production in many parts of the world either stagnates or declines outright (Chart 4).

Which brings us back to square one, and specifically the migraine-causing dilemma faced by OPEC, which Saudi Arabia had hoped to eliminate in 2014: volume or price?

With non-OPEC poised to grow again, OPEC will need to increase oil output by just 2.2 million b/d to meet global incremental oil demand of about 5.5 million b/d over the 2017-22 period, according to BofA calculations. So about 1/3 of global oil supply growth will come from OPEC in 2017-22 (Chart 5). In this context, Blanch believes that Saudi, Iraq and the UAE are the only countries able to increase their output in the medium term, while Algeria, Nigeria or Venezuela would need massive investments to reverse current trends and boost output.

This may be true, unless of course just like US shale, production breakeven costs are sliding across the world. Furthermore the actions of such giant “vendor-financing” providers as China (seen best in the case of Venezuela, where China continues to provide Caracas with much needed funds in exchange for far below market oil deliveries) remain unpredictable, and may afford these non-core OPEC nations just the funds they need to also steal market share from Saudi, Iraq and UAE.

According to BofA, while OPEC countries have the resources to grow production, its previous work shows that OPEC revenue would likely be higher if no additional investments are made compared to scenarios where increased OPEC production leads to lower prices (Chart 6).

For this reason, Francisco Blanch says he expects limited OPEC oil output growth over the next 5 years.

We, however, disagree, especially following today’s news that Russia overtook Saudi Arabia as the world’s largest crude producer in December, when both countries started restricting supplies ahead of agreed cuts with other global producers to curb the worst glut in decades.

As Bloomberg reported earlier, Russia pumped 10.49 million barrels a day in December, down 29,000 barrels a day from November, while Saudi Arabia’s output declined to 10.46 million barrels a day from 10.72 million barrels a day in November, according to data published Monday on the website of the Joint Organisations Data Initiative in Riyadh. That was the first time Russia beat Saudi Arabia since March. Iraq came in fourth at 4.5 million barrels a day, followed by China at 3.98 million barrels a day, the data show. The US, which has emerged as the oil swing producer, was the third-largest producer, at 8.8 million barrels a day in December compared with 8.9 million barrels a day in November, according to JODI.

It is unlikely that if BofA is right and US shale manages to boost oil output by 3.5 million bpd – or more, if oil prices rise further – over the next five years, potentially surpassing Saudi Arabia should the kingdom’s production remain stagnant, that Riyadh will sit and watch as not only Russia but the US threatens its standing as the world’s biggest producer of crude.

Whether this is accurate will be revealed over the coming months based on what happens to the record level of crude inventories currently in the US. Should the much anticipated “rebalancing” fail as excess demand fails to materialize, the oil-rich kingdom may have no choice but to once again try to put marginal producers out of business but breaking up the OPEC cartel and replaying the post-2014 episode once again, sending crude prices in freefall.

Submitted by Nick Cunningham via OilPrice.com,

Oil prices are stuck in a holding pattern, waiting for more definitive data on what comes next. OPEC compliance is helping keep prices afloat, but rising U.S. oil production is acting as a counterweight.

A new problem that has suddenly emerged is the record levels of gasoline sitting in storage. The market has already had to digest the fact that U.S. crude oil stocks were rising, and investors have done their best to explain away the trend. But now gasoline inventories are climbing to unexpected heights.

It would be one thing if crude stocks were rising, perhaps because refiners were going offline for maintenance. But if that were the case, then gasoline stocks would draw down on lower refining runs. But if both crude and refined product inventories are going up at the same time, then there should be some reasons for worry.

In fact, the glut of gasoline is now the worst in 27 years. At 259 million barrels, U.S. gasoline storage levels are now at their highest level since the EIA began tracking the data back in 1990.

(Click to enlarge)

Part of the reason for the glut, of course, are high levels of production. Although gasoline production ebbs and flows seasonally, U.S. production has been on an upward trend in recent years. Instead of bouncing around in a range of 8.5 to 9.5 million barrels per day before 2014, U.S. production since the collapse of oil prices has steadily climbed to a range of 9 to 10 mb/d.

(Click to enlarge)

(Click to enlarge)

U.S. gasoline demand plunged to just 8.2 million barrels per day in January, and sales were down 4 percent from a year earlier. It was also the lowest level in four years. Weak demand is raising some red flags for the market.

Demand is seasonal, with softer demand in winter months, but this winter’s ‘valley’ is lower than any other since 2012.

The problem becomes particularly acute when you take into account the fact that refiners have actually cut back on gasoline production in recent weeks. Even with lower refining runs, gasoline storage levels continued to rise.

The data is worrying, especially since broader economic data does not point to deep problems with the U.S. economy. Some, including the EIA, speculate that higher prices are cutting into demand. That would be surprising given that prices at the pump are still a fraction of what they were a few years ago.

The drop off in demand could be temporary, with consumption rebounding in a few months. Warmer temperatures tend to lead to more driving, and if demand rises it will halt the climb in gasoline inventories. But even a small hiatus in demand has led to a buildup in storage levels to such a degree that it will take time to bring down. “It kind of ruins your whole year potentially,” Sam Margolin, an analyst at Cowen, told the WSJ. “Demand growth appears to be the riskiest element of the oil equation in 2017, and the rally could pause until driving season.”

The glut of gasoline has led to tankers being turned away at New York Harbor in recent weeks, diverted to ports in the Caribbean. However, even that did not resolve the glut on the U.S. east coast. “Record-high inventories in the region are now pushing prices low enough to turn the typical trade flow on its head,” Bloomberg reports. The east coast typically imports a lot of crude oil and refined products. But refined products are instead heading in the other direction because of the buildup in supply.

If demand does not rebound, then gasoline inventories will rise further. At that point, refiners will be forced to cut back on production, which means a reduction of their purchases of crude oil. Less oil sales means higher crude oil inventories, pushing down prices. Ultimately, that could force drillers to reduce supply. In short, if U.S. demand – and by extension, global demand – does not come through for the oil market, then oil prices could decline this year.