-Optimism lacks durability in the current market climate
-The coronavirus is revealing the good, the bad and the ugly in the world
Solace is a short-lived concept. Brent crude oil enjoyed two straight days of gains this week after the “whatever it takes” mentality infected central bank leaders and government officials. Overnight, US lawmakers gave the nod to a whopping $2 trillion stimulus package to arrest the economic decline. Optimism in the time of the coronavirus is fleeting, however. Corporate spending is cratering and the narrative could quickly get weaponized.
It may be expectations of a drain in US crude oil and gasoline inventories or cuts in capital expenditures dragging on oil early Wednesday. After managing to squeak out a gain of 0.44% in the previous session, Brent was down some 2.9% as of 8 a.m. ET to hit $26.37 per barrel
Sounding as triumphant as Paul Bremer after the capture of Saddam Hussein, US Senate Majority Leader Mitch McConnel announced that “at last we have a deal” meant to rescue the economy from depression. The deal as drafted outlines more than $2 trillion in loans and other means of support, including one-time direct checks of $1,200 to American taxpayers. According to reporting from Reuters, the money on the table “exceeds the amount the United States spends on national defense, scientific research, highway construction and other discretionary programs, combined.”
That was not enough to ease the pain in the energy sector. After suspending share buybacks until further notice, Norwegian major Equinor announced plans to cut capex by around $2.5 billion, or some 20%.
“Our strategy remains firm, and we are now taking actions to further strengthen our resilience in this situation with the spread of the coronavirus and low commodity prices,” President and CEO Eldar Sætre said in a statement.
Elsewhere, China’s CNOOC said it too was preparing for significant cuts in spending. Occidental Petroleum Corp. on Wednesday upped the ante by announcing a reduction in 2020 spending by as much as 47%. The low-price environment is expected to eat into Oxy’s production by 6% to around 1.3 million barrels of oil equivalent per day. That’s good news for an oversupplied market, but bad news for the US energy sector as a whole. We’ll get a better idea of how bad the news is on Thursday when US jobs numbers come out. The expectation so far is for dramatic losses.
Negative messaging is more powerful than positive messaging and that notion is something well known by populist leaders and those perpetuating misinformation through social media. US President Trump has said he would stop calling COVID-19 the “Chinese virus,” though his xenophobia is contagious. The Soufan Center, led by former FBI agent Ali Soufan, posits that white supremacists may be hijacking the message by stating the virus is a conspiracy designed to “eliminate the white race.”
“The psychological fear and attendant panic induced from a critical infrastructure or small arms attack on a grocery store would go beyond the immediate targets of such an attack. Thus, law enforcement must remain vigilant and alert to the potential menace of a white supremacist attack during the COVID-19 crisis,” it’s report read.
Compounding that fear factor is commentary in the BBC that says the US response to the crisis so far is indicative of a failing superpower, describing the White House platform as “Pyongyang-on-the-Potomac.”