The Daily Dose; “It Could Have Been Much Worse”

-WTO adds voice to better-than-expected chorus.

-US trade advisor walks back negative trade comments.

Crude oil prices were supported by a tailwind from Bank of America, which upgraded its forecast for Brent by more than $5 per barrel. BofA analysts on Monday defended their forecast by noting improvements in demand, along with strict compliance among parties to OPEC+ curtailments. The rally was extended on Tuesday after a top US economic policy maker clarified his stance on the durability of the nascent trade deal with China, the world’s second-largest economy. A cap on Asian demand could stifle the rally, however. And reality could be catching up to the market, with analysts supporting the grim economic outlook from the US Federal Reserve.

The price for Brent crude oil was up 1.7% as of 8 a.m. ET to trade at $43.81 per barrel. The rally was supported overnight by US trade commitments and extended by comments from the World Trade Organization that the economic damage from the coronavirus has not been as bad as expected.

In an analysis rife with uncertainties, the WTO said initial estimates for global trade in the second quarter show an 18.5% contraction year-on-year. While large, the organization said the decline was not as great as initially feared.

“The fall in trade we are now seeing is historically large – in fact, it would be the steepest on record,” WTO Director-General Roberto Azevêdo said in a statement. “But there is an important silver lining here: it could have been much worse.”

Depending on your baseline mindset, that’s either welcome news or damning news. News headline writers have lauded the steady gains in US employment for much of the second quarter, though a 20% jobless rate is really nothing to celebrate. Neither is the worst contraction in world trade since record-keeping began. But, and there’s always a but, the decline in trade was not as severe as the WTO expected. Trade fears last year were supported by the shaky trade negotiations between the United States and China. Those fears resurfaced late Monday after disparaging remarks from White House trade adviser Peter Navarro, who suggested in an interview with Fox News that China “sent hundreds of thousands of people to this country to spread that (corona)virus,” adding the US-Chinese trade deal was “over.” US President Trump, however, quickly responded on his Twitter account by stating the agreement was “fully intact.”

That’s supportive of improved trade levels in the Asian economies. And with US crude oil trading at a $2 per barrel discount to Brent, Asian buyers are turning to the United States for more oil. Reporting from the Bloomberg news agency finds Asian imports of US oil should come it at around 49 million barrels next month, compared with the 27 million barrels schedule for June delivery. China, however, is looking to increase domestic oil and gas consumption this year by 1% and 4.3%, respectively, to keep inventory levels stocked. China has been on a bit of a buying spree lately, with June and July import levels expected to top the 11.3 million barrels per day from May. But, and there’s always a but crude oil imports could drop by as much as 1.3 million bpd from August. Asian refinery margins, meanwhile, are on the decline amid fears of a second wave of regional infections of coronavirus.

On the broader macro view, a survey from the Reuters news service finds general support for the damning economic assessments from the US Federal Reserve. Fed Chair Jerome Powell has said a V-shaped economic recovery is unlikely and Loretta Mester, the president of the Federal Reserve Bank of Cleveland, said all of the jobs gained during the largest economic expansion in history are gone. Trump said recently that a second round of stimulus is likely in one form or another, and the reality on the ground suggests it’s desperately needed. Of the 100 economists surveyed by Reuters, only five said the Fed’s outlook was “too optimistic.” It could take years before US jobs return in strength and some workers may find their economic segments beyond repair. The May jobs report was far better than expected, though more than half of respondents said the latest report “overstates the strength of the job market recovery,”


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