-The OPEC guessing game continues.
-US labor pains may be over the hump.
Equities futures were on the rise in early Wednesday trading on signs the US economy was recovering from pandemic-driven headwinds. Optimism was supported by word from Anthony Fauci, a front-line official on the US battle against coronavirus, that he was “cautiously optimistic” about the potential for a vaccine. But a mixed bag on US fuel and commercial crude oil levels provided little support for the price of oil. Parties to OPEC+ curtailments, meanwhile, seem to be – to no real surprise – at loggerheads over the road ahead. And while violence seems to be subsiding, an inevitable fanning of the flames of protest by President Trump remains an underlying risk to economic momentum.
The price for Brent crude oil was down some 0.8% as of 8 a.m. ET to $38.83 per barrel, dropping sharply in overnight trading on word of the inevitable OPEC bickering. Brent had rallied nearly 14%, or some $4 per barrel, since May 28, though some analysts have pondered if the gains were overdone.
Equities futures in New York were gaining ground in early Wednesday trading after private payroll processor ADP reported some 2.76 million job losses in May. While troubling, the numbers came in far below the 8.8 million feared in some circles, though federal US data on claims for the week ending May 29 may provide clues for the big discrepancy. Manufacturing was the hardest hit, though much of that was because of temporary closures.
“The impact of the COVID-19 crisis continues to weigh on businesses of all sizes,” said Ahu Yildirmaz, co-head of the ADP Research Institute. “While the labor market is still reeling from the effects of the pandemic, job loss likely peaked in April, as many states have begun a phased reopening of businesses.”
There remains, however, a real risk of a second wave of infections that could undermine a full-scale economic reopening. According to analysis from Reuters, southern US states that were not as aggressive as others with lockdowns – such as Alabama, South Carolina and Virginia – are reporting sharp spikes in COVID-19 cases. That could be problematic given the increased tensions in the United States, as protestors march shoulder-to-shoulder. An assessment from The Soufan Center finds that President Trump has taken to Twitter to flame tensions “as he intended,” and the darker tone is spilling across the globe. The mood was lifted somewhat by comments from Anthony Fauci, the leading infectious disease expert in the United States. Speaking to The Wall Street Journal, Fauci said he was optimistic that a quick vaccine would prove “within a reasonable period of time.”
Despite secondary spikes in the US south, easing quarantines are supporting the mood and it’s showing up in the data. GasBuddy, which monitors retail gasoline prices at the microlevel, reported US gasoline demand on Tuesday was 5.4% higher than the previous week and 15.2% higher than the same period last month. That contrasts with data from the American Petroleum Institute showing gasoline stocks increased by 1.7 million barrels in the week ending May 29. Total commercial crude oil inventories dipped by 483,000 barrels, however, compared with expectations of a 3 million barrel build. Federal US data on inventories will decide the direction of trading later on Wednesday.
Oil prices were supported early in the week on signs that parties to the OPEC+ agreement were on the same page in terms of market support. The devil is in the details, however. Russia has been reluctant to embrace long-term adherence to the 9.7 million barrel per day in shared cuts, but has recently signaled it could continue to cut back for another month or so. According to the obligatory sources that speak to media outlets before OPEC meetings – Bloomberg in this case — Saudi Arabia wants more. And according to his spokesperson, Russian President Putin has no plans to issue a statement on production levels before OPEC ministers meet next week in Vienna. Until then, the guessing game continues.