The Daily Dose; The Economy Was Kinda Bad Already.

-US employment peaked in 4Q19.

-World Bank sees lasting economic scars.

Word that a trio of oil producers in the Middle East, including Saudi Arabia, would bail on extraordinary production cuts threatened to end a remarkable streak for the price of oil. Brent had been on a bull run since late April, rallying some 43% on the back of double-digit daily gains. OPEC commitments, however, seem to have fallen short, threatening to make a $40 floor a ceiling. Brent found little support elsewhere in economic news, with recessionary bells ringing loudly. Meanwhile, supply side issues may be re-emerging as the price of oil is just enough to incentivize drillers beaten by the April slide.

The price for Brent crude oil ended the Monday session in negative territory for the first time since May 27, when the benchmark ended trading at $34.74 per barrel. With economic reality catching up with the market now, Brent was down some 0.3% as of 8 a.m. ET to trade at $40.70 per barrel.

Market watchers spent much of the weekend glued to the virtual feed of the latest meeting of parties to OPEC+ curtailments. The obligatory OPEC sources had spilled the beans on Friday, but ministers made extending the 9.7 million bpd restraint agreement through July official on Saturday. Initially credited with cracking the whip on cheaters such as Iraq, Saudi Arabia later said it, along with Kuwait and the United Arab Emirates, would not extend the 1.2 million bpd in additional cuts. Word from Goldman Sachs that the rally in crude oil prices was due for a correction added to the headwinds for Brent overnight. Gains by the UN-backed government in Libya, meanwhile, were adding insult to injury, though a force majeure declaration eased some of the pressure.

By late Monday, the US National Bureau of Economic Research determined the longest economic expansion since 1854 ended in February, signalling the start of recession. That pre-dates the start of mass lockdowns to prevent the spread of the coronavirus in the country. And while much of the market focus was on the “r” word, the bureau offered a dour assessment of the US labor market.

“The committee concluded that like GDP and GDI (Gross Domestic Income), the number of people working also reached its quarterly peak in 2019Q4,” its report read.

The coronavirus pandemic only made it worse. The OECD stated that the number of people off the payroll among its members increased 18.4 million to 55 million in April. The United States was the largest contributor to those numbers, with some 15.9 million people out of work. Looking forward, the World Bank said the pandemic will likely leave lasting scars on the global economy by way of lower investments and shrinking human capital.

“These effects may well lower potential growth and labor productivity in the longer term,” its report read.

That does little to support hopes of a V-shaped recovery, leaving oil under long-term pressure. Elsewhere, lighter crudes such as Arab Extra Light are enjoying a premium to medium and heavy crudes. And while the immediate impact is seen in an increase in Saudi Aramco’s latest July official price, it could eventually bring shale drillers back to life. Short term, however, and prices may recover on Tuesday. Mexican inflation came in lower than expected, optimism among small business owners in the United States surprised on the upside and euro-area GDP was marginally better than forecast. The American Petroleum Institute is expected to report another draw on US crude oil inventories, further signaling the glut is over. For now.

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