-OPEC+ in agreement. For now.
-The recession will be televised.
Brent did it! The global benchmark crashed through the $40 ceiling in overnight trading on word Russia and the other major parties to OPEC+ curtailments were extending the deal beyond June. Russia had balked earlier on deeper cuts, arguing the demand destruction from the coronavirus was a temporary market factor. Now, ironically for Russia, it was cheating from Iraq and Nigeria that proved to be the latest hang-up. Or it could all be premature given Russian energy company Rosneft’s latest worries about supplying its customers. Concerns about irrational exuberance in commodities, meanwhile, could turn true if economic headaches continue. Global GDP is in a steep contraction and the US unemployment rate remains in double-digit territory, even with hiring on the uptick. With deep systemic fissures emerging in Washington, confidence may be at a premium.
The price for Brent crude oil was up 3.5% as of 8 a.m. ET to trade at $41.37 per barrel. We have, however, seen this movie before this week, with booms and busts trading spots in intra-day trading. Froth over a weekend meeting for OPEC+ could be overly optimistic given current economic and political trends.
Russia and Saudi Arabia have agreed to extend the curtailments of a collective 9.7 million barrels per day by one month, through July. OPEC officials had spent much of the week tossing around dates for the next ministerial sit down, finally agreeing to a one-day meeting for Saturday. Russia spent much of the year in hesitation over the curtailments, but has sided with Riyadh on the latest maneuver. It was cheaters like Iraq that proved to be the latest obstacle. The Iraqi government is heavily dependent on revenue and the lack of pay for energy workers led to tense protests at the country’s oil and gas installations. According to Fatih Birol, the head of the IEA, Iraq gets about 80% of its revenue from oil and the current market price only supports about half of its salary obligations. It is not, meanwhile, all it’s cracked up to be in Moscow. Russia oil giant Rosneft, run by one of President Putin’s closest confidants, is said to be concerned about supplying major buyers such as Glencore and Trafigura. A handful of sources speaking to the Reuters news agency suggested the OPEC+ curtailments created a rob Peter to pay Paul situation.
“Rosneft is in pain … They must supply refineries, term buyers,” one of the sources said. “There are simply no resources.”
Meanwhile, a source speaking to Russian news agency Tass said to expect a “long and difficult night” in Vienna.
Elsewhere, logistics are being upended by the strains of the coronavirus quarantines. Companies like Hapag-Lloyd and Maersk are slow-steaming and taking other measures to avoid excess costs, causing bottlenecks offshore as supplies build up. That could become problematic if social movements across the globe eat into consumer spending. That in turn could be particularly problematic for the United States, the world’s largest economy. Frustration over the use of excessive and sometimes deadly force by American police spilled over to the political arena, with demonstrations putting the White House on a heavy security footing. The Soufan Center, run by former FBI counter-terrorism expert Ali Soufan, said Washington managed to keep its reputation as a global influencer through the embarrassment of Abu Ghraib and Gauntanamo Bay, but the combination of authoritarian tendencies from President Trump, his mismanaged response to the coronavirus and accusations of stoking violence has proved to be a tipping point. And from the 10,000-foot market view, Siân Jones, an economist at IHS Markit in London, said the economy is clearly on its back foot.
“Although many states have begun to reopen and lift COVID-19 restrictions, the US private sector continues to reel from lockdown measures,” she wrote. “A large number of firms are still unable to resume operations due to travel restrictions and social distancing measures.”
The GERM Report 