The Daily Dose; OPEC+ chats up a rally

-Sources close to OPEC thinking return as expected.

-China warns of triggering a new Cold War.

Russian financial and national health woes are catching up with the Kremlin. Low oil prices and the global health pandemic are sparing nobody and the inevitable sources revealed Tuesday that Russian Energy Minister Alexander Novak has scheduled meetings to discuss extending the current OPEC+ restraint agreement beyond June. Novak was quoted on social media as saying oversupply strains would probably ease by July, as global demand returns from its quarantine slumber. Stock market futures were also showing signs of an upward bounce on Tuesday as the long holiday weekend saw Americans breaking cabin fever in droves. Beneath the optimism, however, were real concerns that tensions between China and the United States could leak out of the financial realm and into national security circles. An 18-month trade war between the two economic giants constrained neither power in geopolitical terms, but managed to constrain global economic growth. A new Cold War would only limit a fragile economy further.

The price for Brent crude oil was up 1.6% as of 8 a.m. ET to $36.09 per barrel, following a week that saw an 8% spike for the global benchmark. Fears of seeing the delivery point for US-trade crude in Cushing, Okla., overflow are last week’s news. The news now is of recovery, but the news comes with warnings beneath the fold.

One could almost set a watch on sources emerging ahead of key OPEC meetings to reveal policy thinking among its elite ministers. Crude oil prices were up as sources revealed Tuesday that Russian Energy Minister Novak is scheduled to chair an online meeting with oil officials to discuss holding to current commitments beyond June.

“A possibility of the extension of the existing quotas after June is expected to be debated,” an unnamed source told Reuters. “The period of the extension will be discussed as well.”

While relying on non-OPEC constraints, the core OPEC+ group agreed to trim some 9.7 million barrels per day – about 10% of global consumption – from the market through June. Combined with market-driven production declines in the United States and elsewhere, a glut that built up early this year is evaporating. And thanks to an increase in consumption, the Russian energy minister said the market could balance out no later than July. Last week, the US Energy Information Administration confirmed the sentiment by reporting a 5 million barrel drain on commercial crude oil inventories, though that’s still 10% above the five-year average.

Demand is improving, though cautionary caveats are plenty. Russian Central Bank Gov. Elvira Nabiullina said last week the positive sentiment was becoming contagious as more lockdown restrictions eased. Stock indices, she added, were rallying, while risk premiums were fading. The price for Urals, the Russian benchmark for the price of oil, is already above the bank’s conservative estimate for the year.

“However, markets hinge on expectations and tend to run ahead of actual developments,” she warned. “Current data on the situation in the global economy are still not that optimistic.”

Warnings from health officials that too much, too soon could lead to a second wave of infections will be put to the test after Americans broke cabin fever by skirting isolation rules during the long Memorial Day holiday weekend, the de facto start of summer. The so-called driving season, which runs through Labor Day in September, usually sees an uptick in gasoline demand, but demand could be restrained even as quarantines ease as would-be vacationers reconsider their travel plans in the new-normal era. Demand could be throttled too if the breaking of social restrictions leads to an uptick in coronavirus infections in the United States. In Michigan, one of the hardest hit states, out-of-towners taking advantage of the early reopenings in the resort town of Traverse City tested positive for coronavirus, leading to quarantines of about a half dozen people.

Headlines beneath the fold, meanwhile, reveal the return of geopolitical tensions. Libya, North Africa’s largest oil producer, is quickly emerging as a battle ground for supremacy in the region among the world’s superpowers. In Asia, the Trump administration’s decision to target Chinese technology with sanctions rekindled concerns a shaky trade agreement between the two economic giants might not work out. Tensions of a different kind are now threatening to upend the mood. Chinese assertions over Hong Kong have rattled some US lawmakers and the president’s inner circle. That prompted a warning from Chinese Foreign Minister Wang Yi, who accused “US political forces” of pushing both sides to “the brink of a so-called ‘new Cold War.’”

“This is dangerous and will endanger global peace,” he said. “China has no intention to change the U.S., not to mention replace the U.S. It is also wishful thinking for the U.S. to change China.”


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