The GERM Report

-OECD; This is worse than the Great Recession

-Russia’s patience with OPEC constraint wearing thin

Crude oil prices were in a holding pattern in early Thursday trading ahead of weekly data on first-time jobless claims in the United States. Exuberance was aplenty last week after the data showed a surge in new hiring, though data points preceded reinstated lockdowns in the United States. In a recent report, meanwhile, the OECD said the employment outlook for member states was far worse than during the economic crisis of the late aughts. On consumer patterns, federal data showed US gasoline inventories dropped from the last week in June, though that is not reflective of the broader demand picture. The weak outlook ahead does little, however, to support continued discipline among parties to OPEC+ curtailments.

Brent, the global benchmark for the price of oil, was up 0.16% as of 8 a.m. ET to trade at $43.36 per barrel. Oil has been trading in a narrow band around the $40 mark since around mid-June as demand concerns yield to something of an apathetic stance on the global economy.

The last time oil showed any high degree of volatility was on June 24, when Brent closed down some 5% to $40.31 per barrel. The move coincided with a structural flip for the benchmark from supply-side pressures to the demand side of the equation. Brent futures the week prior had flipped briefly into backwardation, though the reversal to a market signal showing balance coincided with quad witching, typified by the simultaneous expiration of market index futures, stock futures, market index options and stock options. The GERM Report at the time pondered the prospects for a price correction in crude. The Brent structure has since remained in contango, indicating the market is anticipating a glut.

The US Energy Information Administration on Wednesday reported a draw on US gasoline inventories for the week ending July 3. That indicates consumers were eager to hit the road, though the data point preceded the long holiday weekend marking US Independence Day. The four-week average for total products supplied, a proxy for demand, showed a 15.1% drop from the same period last week. Total motor gasoline product supplied over the past four weeks was down 12.5% from the same period last year, while jet fuel supplied was down a whopping 57.2% over the same period.

The US Labor Department reported new filings for unemployment for the week ending July 3 were more or less on part with expectations for 1.4 million in initial claims. A survey of chief financial officers in the United States, conducted in coordination with federal reserve banks and Duke University, found there was some optimism, but the general mood was still somewhat gloomy.

“Although some of these jobs will return by the end of the year, CFOs on average expect year-end 2020 employment to be 5% lower than it was at the beginning of the year,” John Graham, a Duke finance professor, said in a statement. “By year-end 2021, employment is still expected to remain below pre-COVID levels.”

In its latest outlook, the Organization for Economic Cooperation and Development said the jobs outlook was far worse than it was during the Great Recession. All jobs gains since then have been lost to the quarantine economy. The OECD reported that, even its most optimistic scenario, the unemployment rate among member states will reach 9.4% in the fourth quarter.

“As prospects of quickly finding new work will remain poor for many, some countries should extend unemployment benefit durations to prevent jobseekers from sliding too quickly into much less generous minimum income benefits,” the OECD recommended. “Emergency support for the self-employed should also be re-assessed to improve targeting, restore incentives and ensure fairness.”

That does little to incentivize demand and prompt another reversal in the trading structure for crude oil contracts. Demand prospects should also prompt the world’s major oil producers to practice continued restraint. Dmitry Medvedev, the deputy chairman of the Russian Security Council and former prime minister, said the prospects for a second wave of coronavirus infections, as witnessed in the United States, would be detrimental to the health of the global economy.

“The global economy may drop by more than 5%,” he was quoted as saying. “Our economy will also sink deeper.”

Russia is one of the architects behind the OPEC restraint movement seen as providing support to the price of oil. Urals, the Russian benchmark for the price of oil, is trading at a premium to Brent, however, and Russia may be losing market share to other suppliers, particularly on the European economy. The battle for market share triggered a price war between Russia and Saudi Arabia, hammering crude oil prices just as the pandemic took hold early this year. Another round of fighting would almost certainly limit gains for the price of oil. The Kremlin, hinting for weeks that its patience was wearing thin, said Thursday, however, that it has no plans to discuss the market with Saudi Arabia ahead of next week’s OPEC meeting.