-Like OPEC, US Fed Chief Powell needs a Goldilocks moment.
-OECD finds the global employment situation to be bleak.
Chinese oil demand is almost back to what it was in late 2019, before the onset of the coronavirus pandemic. US consumer fuel demand, meanwhile, is recovering from an April slump. That’s the word Wednesday from oil oracle Daniel Yergin, the vice chairman at IHS Markit. Optimism has run rampant in the crude oil market since the mid-April nose dive into negative territory. Brent now seems to be holding to the $40 mark, though the economic reality may be starting to catch up with the market. Economists at the OECD warned that recovery is highly uncertain and, with or without a second spike, there may be no going back.
Brent managed to offset an early-morning slump to rally once again in Tuesday trading, closing the day at $41.18 per barrel. A troubling assessment of future economic trends from the OECD helped spoil the rally, leaving the global benchmark for the price of oil to trade down 1.7% as of 8 a.m. ET to $40.48 per barrel.
Early this year, Gerry Rice, the spokesman for the International Monetary Fund, said Hubei province, the center of the coronavirus in China, represents about 4.5% of China’s GDP, so the outbreak could have a “very direct impact” on China’s economy — and the rest of the world. In a conversation with the Bloomberg news agency, Yergin said that as the spread of the virus slows, Chinese crude oil demand is now about 8% away from “normal” levels . Consumer fuel consumption in the United States, the world’s largest economy, is recovering from a mid-April slump and those two elements combined are helping to drain inventory levels that once threatened to overflow. Returning to a sense of normalcy, however, will take a couple years.
“And it will be very tied into GDP and what happens to overall economic activity,” Yergin said.
While an improvement from its June 4 estimate of a negative 53.8% slump in US GDP, the Federal Reserve Bank of Atlanta now expects real GDP growth in the second quarter to come in at negative 48.5%. Any way you slice it, that’s not good. On Monday, the US National Bureau of Economic Research determined the longest economic expansion since 1854 ended in February and the US economy was officially in recession. That pre-dates the start of mass lockdowns to prevent the spread of the coronavirus in the country. In Europe, the Bank of France estimates the economy would shrink by some 15% from first quarter levels. Globally and the OECD said that, full recovery or not, the economic reality is in the midst of a sea change.
“As restrictions begin to be eased, the path to economic recovery remains highly uncertain and vulnerable to a second wave of infections,” its report read. “With or without a second outbreak, the consequences will be severe and long-lasting.”
In a case study where there is a noticeable rebound in coronavirus infections, the OECD estimates global economic output shrinks 7.6% this year and unemployment doubles to 10% “with little recovery in jobs by 2021.” That comes as some segments of the US policy circle celebrate the latest payroll data, which still showed unemployment in the double digits. In a situation where coronavirus infections ease, global economic output drops by 6% this year and unemployment remains at 9.2% in 2020.
“Living standards fall less sharply than with a second wave but five years of income growth is lost across the economy by 2021,” the report read.
Elsewhere, Bloomberg news reported that US jobs prospects were, in a word, ugly.
That sets up the scene for US Federal Reserve Chair Jerome Powell. The fed chief takes the podium Wednesday to offer his assessment on whether the worst is over for the American economy. No major policy decisions are expected from the US Fed, though his tenure has been clouded over by pressure from right-wing segments of the US political machine. The jobs report from last week came in better than expected, but with caveats. That could provide fodder for right-wing leaders wary of overextending social benefits. For the US economy to move in non-partisan fashion, Powell needs to walk a tightrope and, like OPEC+ policies before him, find his Goldilocks moment.