-China could usher in the Beijing Consensus
-Wood Mac: Life at $30/bbl possible, but it won’t be pleasant.
Rumors of normalcy returning to parts of China and extraordinary intervention by economic policy makers gave crude oil a lift in early Thursday trading, though it may be a short-lived bounce. We are in a period of a double-edged economic sword, with demand evaporation coinciding with a free-for-all for OPEC producers. Who recovers first may determine the hegemonic trends that emerge after this crisis is over.
Brent crude oil was up 3.42% as of 8 a.m. ET to trade at $25.73 per barrel. The rally followed dramatic stimulus from the Europeans and the possibility of a massive infusion of consumer cash in the United States. For industrial segments of the economy, however, the damage has already been severe.
The European Bank for Reconstruction and Development on Wednesday launched a $1.1 billion emergency aid package to support the companies in countries damaged by the economic crisis triggered by the coronavirus. In an $820 billion purchasing effort, the European Central Bank said it would do whatever necessary within its mandate to help right the ship. Similar pledges of support came from the United States and China as global managers take a war-like posture to tackle the economic fallout.
Policy makers are concerned about the massive furloughs triggered by the closure of everything from factories to restaurants. US automakers on Wednesday announced plans to shut their doors amid the crisis, following trends already established in Europe. The upstream segment of the energy sector is also getting hammered. Industry body Oil & Gas UK predicts revenues for regional producers could fall by as much as $18 billion from the $30 billion posted last year. In an emailed report, Wood Mackenzie reported that severe spending cuts may be necessary to break even at $35 per barrel.
“Balancing the books at $30/bbl in 2020 is possible for many companies,” Wood Mac’s Roy Martin said in the report. “But tough decisions would be required.”
In China, however, life is slowly returning to normal. Factory workers in Wuhan province, the ground-zero of the outbreak, are returning to work. The official Xinhua News Agency reported that some 7,700 provincial enterprises, including the automotive segment, have returned to production. According to data provider Kpler, Chinese imports of liquefied natural gas are stabilizing. Chinese official data show coal use for power is returning to normal, vessel traffic inbound is on the rise and refinery throughput is up. It’s taken nearly two months for the Chinese economy to recover and if that serves as any sort of predictive model, the US and European economies won’t rebound until May at the earliest. China was the first to be infected and looks primed to be the first to recover. Neither the US or the European outbreaks have peaked, leaving China in a position similar to the United States in the post-World War II era. China may ready to finally usher in the Beijing Consensus.
The GERM Report 