-Oil prices forgot all about yesterday.
-Barclays ups its oil price forecast, but adds a caveat.
The market has lockdown fatigue and its memory is short. Crude oil prices lost substantial ground in the Thursday session as investors worried about the possibility of another round of lockdowns stemming from a resurgent coronavirus. US crude oil prices are headed for the first weekly loss since April, though traders were buying the dip overnight. In the oil patch, meanwhile, used oil equipment is going for a bargain as drillers look to store up revenue in the downturn. And the disconnect between market prices and economic reality continues to widen, with Barclays now warning that crude oil went too high too fast.
The price for Brent crude oil lost 7.6% in the previous session amid fears of a second wave of coronavirus infections. Analysts, however, shrugged off the prospects of a return to the quarantine economy, giving oil a lift in early Friday trading. Brent was up some 0.9% as of 8 a.m. ET to strike $38.89 per barrel.
Social and economic lockdowns to contain a viral pandemic have been devastating. Pent up frustrations have boiled over to public unrest not seen since the civil rights and anti-war movements in the 1960s. In economic terms, the results have been shocking. The British Office for National Statistics on Friday reported that GDP contracted 20.4% in April, its largest decline ever.
“Virtually all areas of the economy were hit, with pubs, education, health and car sales all giving the biggest contributions to this historic fall,” Jonathan Athow, deputy national statistician for economic statistics, said in a statement.
In the US, estimates for the second quarter are for a contraction of as much as 48.5%, according to the Federal Reserve Bank of Atlanta. The economic backslide has been particularly damaging to the energy sector. S&P Global Platts estimates that a rebound in drilling activity is unlikely until 2022, close to 30 different upstream companies have defaulted on debt and a handful are close to bankruptcy. In a recent auction for drilling equipment, one North Dakota buyer paid $27,500 for a used Caterpillar rig that, when new, would’ve cost more than $500,000.
The severe economic downturn has been met with calls to reopen. US Treasury Secretary Steve Mnuchin said the US economy will not shutdown again. But states that have already eased restrictions are seeing a profound uptick in new cases. Officials in Houston, Texas, the fourth-largest city in the United States, are mulling whether or not to re-impose lockdowns as the second wave approaches. A spokesperson for one of the highest authorities in the area, Harris County Judge Lina Hidalgo, said the situation is “out of hand” and “the states is moving too fast to reopen.” Nature may take its course, but it will have to do so in a battle of public opinion. The World Economic Forum said an adequate response to a second wave of infections would be recurrent lockdown measures.
“But while society has so far obeyed the restrictions remarkably well, lockdown fatigue might make it more difficult to impose such strict policies again,” an WEF report read.
Markets were fatigued by bad economic news a long time ago. Elliot Hentov, the head of policy and research at State Street, is having none of it, telling Reuters his firm does not expect a “significant lockdown anywhere in the world.” Equities, particularly those trading on the US exchange, continue to test new heights. And over the first 10 trading days of the month, the price for Brent is up 10% and 100% higher than its low point in April. The surge seems to have encouraged Barclays to up its guess for Brent by about $4 on the year to $41. But according to Reuters, there’s a catch.
“The British lender joins other investments banks, including Goldman Sachs in citing the recovery in oil has been too much and too fast and a pull-back in oil prices was imminent,” its reporting read.