The GERM Report

-The market is cherry-picking data.

-Brent loses its grip on $40 per barrel.

It was déjà vu all over again. It was déjà vu all over again. The slump in crude oil prices that was anticipated after US crude and fuel inventory data failed to materialize in the previous session, supported by a weaker US dollar. For weeks, commodities and stock market indices, particularly those in the United States, have been disconnected from real-world economic malaise. The market waited until overnight to react to yesterday’s bad news, with Brent crude oil prices again showing weakness early in the session. The US jobs report and expectations of a balancing oil market could bring a repeat of past performances for Brent; dropping hard in the morning and ending up in the evening.

Brent was down nearly 2% some 24 hours ago, but finished the day in positive territory despite bleak economic and health outlooks. The global benchmark was down some 4.3% as of 8 a.m. ET to trade at $39.97 per barrel. It may be a tough hill to climb, but a reversal is possible once the US jobs report is processed through presidential tweets and news headlines.

Brent finished Wednesday in positive territory even after the US Energy Information Administration reported a 5.7 million barrel increase in commercial inventories during the week ending June 5. And despite the relaxation of social restrictions, US consumer fuel levels increased more than expected, to 258.7 million barrels. Even distillates, including diesel, took a hit, with storage increasing by some 1.6 million barrels. April threats to available storage pushed US crude oil prices deep into negative territory, though optimism about lower rates of coronavirus infections has since overshadowed much of the negative data.

That optimism and the market disconnect could be tested Thursday by the latest US jobs report. The US Labor Department reported some 1.5 million new jobless claims for the week ending June 5, a slight improvement from the 1.6 million expected. That’s an improvement over previous claims of 2.1 million and sure to be lauded by US President Trump. US unemployment rates, however, are in the double digits. Testifying before US lawmakers on Wednesday, US Federal Reserve Chair Jerome Powell said the hopes for a V-shaped recovery are fading and the US employment picture was grim.

“My assumption is that there will be a significant chunk, well, well into the millions of people who don’t get to go back to their old jobs and there may not be a job in that industry for them for some time,” he said. “It could be some years before we get back to those people finding jobs.”

US Treasury Secretary Steve Mnuchin, meanwhile, said another round of federal stimulus may be necessary. On US health, there are real concerns about a second wave of coronavirus infections in the United States, particularly in states that were less strict on containment measures. Ashish Jha, a lead health official at Harvard, told CNN the high level of US cases can be directly attributed to US states opening before the spread of the virus is under control.

“The pandemic won’t be over in September,” he said.

Elsewhere, the widespread support for OPEC+ restraint could be under threat due to the chronic pressure on state revenues. Russia, which early said the price for its benchmark Urals was already above expectations, has unveiled a $72.5 billion stimulus package to help arrest economic decline. The Kremlin is one of the architects of OPEC+ restraint, though at times it has been a reluctant supporter of voluntary curtailments. Crude oil prices were bruised early this week after Saudi Arabia and its regional allies shied away from extended cuts in production. Should Russia follow suit in an effort to capitalize on the recovery in demand, particularly in Asia, the forecasts for a market correction may come true. That, however, is not the consensus as market movements continue to diverge from the boots-on-the-ground perspective. Rystad Energy in its latest economic survey said it expected consumer demand to return to normal by August.

“With the recent extension of OPEC cuts, the oil market is likely to be in balance by the end of June,” it added.

Given recent trends toward optimism, that may be the quote that drives the market rather than this;

“Global oil demand unlikely to return to 2019 demand level until 2022-2023.”