The Daily Dose

-Wintershall suspends common dividend “until further notice.”

-Are we in the world of Hobbes or the world of Rousseau?

This is unknown territory for the global economy. US Treasury Secretary Steven Mnuchin warned lawmakers that unemployment could hit 20% without some sort of extraordinary stimulus package. Global isolation has cut off key sectors of the economy and markets are shrinking fast. The headline from Bloomberg News, meanwhile, declares the end to OPEC. Russia, for its part, said it was witnessing a remarkable shrinkage in oil and gas revenue. Crude oil prices were charting 20-year lows early Wednesday.

Brent crude oil was down 4% at 8 a.m. ET to trade at $27.58 per barrel, its lowest level since late 2003. A drain in US inventories as reported by the API did little to prop up commodities early Wednesday. It will take remarkable action to arrest the decline any time soon.

The global economy is shutting down in war-like fashion, unravelling the liberal order at an unprecedented rate. For some 60 odd years, the OPEC production group worked to ensure market stability through coordinated action. According to its charter, its members “shall work together to ensure stable oil prices, secure fair returns to producing countries and investors in the oil industry, and provide a steady petroleum supply to consumers.” In the age of demand destruction brought on by a viral pandemic, those words sound like a hippy love fest. In the new Hobbesian phase of international relations, Saudi Arabia has returned to the state of nature by adopting an “every man against every man” stance on production, pledging remarkable output by May. The fallout was precipitated by a lack of willingness from Russia to cut production to address the slumping demand. The Kremlin on Wednesday said it was out billions of dollars already in oil and gas revenue and Bob McNally of the Rapidan Group said there may be no floor under the price of oil.

The state of nature according to some thinkers is a state of anarchy, where no single overseer has the authority to hold the rest of the community in order. This is where we are. But according to Jean-Jacque Rousseau, a notable critic of Hobbes, the state of nature was more akin to the idea of a “noble savage” that knows nothing of the pride or envy that is manifested in today’s era of nationalism. Mankind before the establishment of society knew nothing of pride or envy, because society was dispersed so much that interactions across tribes were fleeting. Perhaps that’s where we’re headed.

Much of the focus in the current market bloodbath has been on the durability of a US shale sector that is well beneath the break-even point for oil. US oil and gas contraction, however, was developing before the outbreak of the coronavirus. The infection is spreading. German energy company Wintershall-Dea said Wednesday it was cutting spending in dramatic fashion.

“In response to the challenging external environment we are implementing a series of mitigation actions, including a significant reduction in our planned in-year capital investment program, and suspending our common dividend until further notice.” CEO Mario Mehren said in a statement.


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