The GERM Report

-Russia has a fortress economy

-TC Energy Corp. marches forward while Shell steps back.

Vague statements from the White House and the Kremlin on the state of affairs in the oil market gave crude oil prices a lift in early Tuesday trading. Right-leaning lawmakers in the United States have been pressuring Saudi Arabia and Russia for a cease-fire in an oil price war that’s added insult to injury in the age of demand disintegration. In the US, the pain in the economy was apparent in a dramatic slump in manufacturing activity in the Dallas Fed district. Nationalism, meanwhile, is trending, with some Texas producers calling for artificial restraint. US experience with nationalism, however, is no match for Russia’s ability to fortify an economy under pressure.

A coordinated statement from the White House and the Kremlin showed some degree of a truce. The price for Brent crude oil was in the black, trading up 3.94% from the previous close to hit $27.46 per barrel at 8 a.m. ET.

The lift came after US President Donald Trump spoke Monday with his Russian counterpart on the deep contraction in the oil market.

“Opportunities for closer cooperation between the two countries on this problem were discussed,” the Kremlin stated. “They also exchanged views on the current state of the global oil market and agreed that Russian and American energy ministers should hold consultations on this topic.”

Ironically, it was members of Trump’s professed political party who called on Saudi Arabia to switch sides and punish Russia by partnering “with the United States on strategic energy infrastructure projects.” Those pleas fell on deaf ears, leaving it to Russian statements to stimulate the market. In a further show of resilience, the Kremlin may be accustomed to operating an economy under pressure. Years of sanctions taught policymakers how to navigate rougher waters. Sofya Donets, an economist at Renaissance Capital working in Moscow, told Bloomberg news that “Russia is well prepared for this very new phase of closed borders and closure of international trade and financial processes.”

The United States enjoys no such luxury, though financial institutions have sharper tools to use than they did during the Great Recession, according to UBS. Even still, manufacturing in the Dallas Fed district took a nose dive in March and the mood has turned profoundly pessimistic. Apart from oil and gas, manufacturing is one of the key segments of the district’s economy. “We have a dismal outlook,” one respondent told the fed. Elsewhere, the regional economy is taking such a hit that Ryan Sitton, a commissioner for the Texas state energy regulator, is again calling for artificial restraint to save producers. He’s joined by Pioneer Natural Resources and Parsley Energy in saying limitations may be needed to right the ship. That call was, however, met with stiff opposition. Karr Ingham with the Texas Alliance of Energy Producers, a sort of Texas version of the American Petroleum Institute lobby, said that would only make matters worse.

“You’re worse off than you were before,” he was quoted by Reuters as saying.

Spending and production plans, however, remain fluid. Royal Dutch Shell announced Monday it was pulling out of an LNG project in Lake Charles, La., citing a need to “preserve cash.” On Tuesday, the company stated that, based on its 2020 outlook for the price of oil, “post-tax impairment charges in the range of $400-800 million are expected for the first quarter.” In Canada, TC Energy Corp. announced it was finally moving ahead with its multi-billion dollar Keystone XL pipeline, an export artery that could give a lift to heavy Canadian producers and create “thousands of well-paying jobs during construction.” And in Europe, Norway said all was well.

“We’re still producing profitably at today’s oil price and nothing indicates that we’ll end up in a situation where we’d have to cut output,” Minister of Petroleum and Energy Tina Bru said.