-Coronavirus not just a US economic issue
-Iran the target of suspicious, or not so suspicious, activity
Crude oil prices slipped into negative territory early Tuesday after the European Commission lowered its forecast for economic growth. Not to be outdone, Italian major Eni lowered its forecast for the price of crude oil by $10 per barrel, citing trade disruptions attributed to the coronavirus pandemic. Hopes for relief in the second quarter are quickly fading as the pandemic holds no quarter across the globe. Beneath the din of the pandemic, meanwhile, is growing sense of unease in the Middle East. Israel, it seems, is targeting nuclear installations in Iran, while Hezbollah and Hamas prepare for action in defense of Palestine.
The price for Brent crude oil was down some 0.35% as of 8 a.m. ET to trade at $42.95 per barrel. Brent is trading at a premium in futures contracts, showing the market may be oversupplied, though bottlenecks may leave North America energy products stranded. With a string of mishaps in and around Iranian nuclear facilities, meanwhile, do not discount the emergence of a geopolitical risk premium.
“The economic impact of the lockdown is more severe than we initially expected,” Commission Vice President Valdis Dombrovskis said in a statement. “We continue to navigate in stormy waters and face many risks, including another major wave of infections.”
While the US mishandling of the coronavirus pandemic continues to dominate the headlines, the outbreak is not isolated to North America. Asia and Middle East economies have yet to show a peak in new infections, while Sweden continues to see spikes. Relative to its neighbors, Sweden has shown a large uptick in deaths from COVID-19 complications when gauged by its population size. Acknowledging the lingering pressure from the pandemic, the European Commission in its summer forecast lowered its growth forecast from 7.7% for the euro area to 8.7% for 2020. Growth will, however, rebound to 6.1% growth next year, according to the forecast. The forecast offers a glimmer of hope for the second half of the year, with May and June economic levels indicative of the worst of the worst. Nevertheless, the European Commission’s report indicated that the “risks to the forecast are exceptionally high and mainly to the downside.” For oil, the economic pressure prompted Italian energy company Eni to lower its mid-term forecast for Brent from $70 per barrel to $60 per barrel.
On the strategic front, the economic slump does little to support demand for natural gas. That poses an obstacle not only for Russia’s position as a dominant supplier to the European economy, but to the United States, which sees liquefied natural gas as a containment strategy against Moscow. US lawmakers are busy trying to quash the twinning of Russia’s Nord Stream pipeline to Germany while pressing its regional allies to take on more of the super-cooled US gas. In the United States, the economic pressures have forced the cancellation of a new gas line in the PADD 1 district. Elsewhere in North America, a district court ruled the controversial Dakota Access Pipeline must be emptied and closed by Aug. 5, pending an environmental review. Canadian rigs counts, meanwhile, are plummeting, leaving less crude oil available to the global market. The United States took in 13% less Canadian crude oil during the last week of June than it did during the same period last year. The United States exported some 2.8 million barrels of oil per day for the four-week average ending June 26, down by a half a million bpd from the same time last year. That could be indicative of downward pressure coming for US and Canadian benchmarks.
And don’t ignore the emerging prospects for a geopolitical risk premium. The GERM Report on Monday referenced the possibility of meddling at Iranian nuclear research facilities. The New York Times reported that Israel was behind an explosion at the Natanz nuclear facility last week, though cyberattacks and at least tacit support from an exiled opposition group cannot be ruled out. The incident was just the latest in a string of suspicious activity at Iranian nuclear installations. At least two people were killed and three others were injured at a factory outside Tehran on Monday night. The explosion was said to occur near where Israel had uncovered Iranian nuclear plans before. Targeting Iran comes as Israel faces its own pressure over its annexation campaign in the Palestinian Territories. With Iran backed into a corner, a declaration of unity from the Palestinian group Hamas and Lebanon’s Hezbollah indicates the region may be ripe for renewed conflict.