-BoE frets over furloughs
-OPEC+ signals the end is near
Expectations of a return to growth in the US manufacturing sector combined with a reported drain on US crude oil inventories helped give crude oil prices a lift in early Wednesday trading. Crude oil prices fell in the previous session after the top infectious disease official in the United States warned that complacency was getting deadly. Markets were spooked further by the $22 billion write-down from Royal Dutch Shell, though strong demand signals like declining US crude oil inventories were reason enough for investor optimism. Optimism, however, remains at a premium. Parties to OPEC+ curtailments are expected to ease restraint next month, headcounts are questionable and the head of the British central bank warned of rough times ahead.
The second quarter ended with a bang for equities, posting their best quarter since 1998. The glory was shared in commodities, with Brent crude oil jumping an astonishing 80%, from $24.74 per barrel on April 1 to $41.15 in the previous session. Brent was up some 1.3% to $41.80 per barrel as of 8 a.m. ET after the American Petroleum Institute reported an 8 million barrel draw on US crude oil inventories for the week ending June 26.
The ISM manufacturing index in the United States is expected to just edge into growth territory and construction spending is on the rise. That’s supportive of underlying optimism in the world’s largest economy. Some economic sectors have shown resilience in the face of mounting COVID-19 cases in the United States, though jobs related to leisure and hospitality are in jeopardy. On Wednesday, private payroll processor ADP reported US companies added some 2 million jobs to their payrolls from May to June, but the mining and natural resources segments continued to cut headcounts. Challenger, Gray & Christmas, however, noted that while layoffs were down 57% from May, they were up 306% year-on-year in June. On the other side of the pond, Jonathan Haskel at the Bank of England said the employment outlook was as bad as it was during the recession of the middle aughts.
“Furthermore there remains a great deal of uncertainty as to how many of the currently furloughed workers will be able to return to their jobs, which in large part will depend on our success as a nation managing and suppressing the virus, and the state of household finances and consumers’ appetite for resumption of discretionary economic activity,” he stated in prepared remarks.
His rhetoric and failed experiments with state economic reopenings should reverberate through Washington DC, though the political chaos suggests the warnings will fall on deaf ears. Dr. Anthony Fauci, the head infectious disease expert in the United States, said a massive spike in infections is possible because policymakers are moving in the wrong direction on handling the outbreak.
“Clearly we’re not in total control,” he testified before US lawmakers.
Those concerns have a real-world impact on demand as well as the dependency on oil. Royal Dutch Shell followed BP’s lead with a massive write-down, but did so with a greener future in mind. That would indicate the world may need less, not more oil, though OPEC begs to differ. With crude oil prices holding firmly to a narrow $40 alley, parties to the multilateral curtailment agreement to withhold nearly 10 million bpd from the market may be satisfied the worst is over. Unidentified sources speaking to the Reuters news agency said OPEC+ may open the spigot again next month. Such a possibility was raised in these pages in mid June after Kirill Dmitriev, the head of Russia’s sovereign wealth fund, said “there is no point to extend strict curbs for longer than a month (after July).”