-OPEC needs to do some serious thinking
-Two years before recovery happens, Delta Air Lines said.
Crude oil prices dipped slightly in early Tuesday trading after the secretary general of OPEC said the market was balancing out. The contango structure, where front-month contracts are trading higher than the spot market, is shrinking, confirming OPEC’s position that oversupply pressures are coming to an end. In Europe, the economic sentiment from Germany has improved, though the British economy is sinking fast. On consumer behavior, however, the head of Delta Air Lines said it may be a good two years before a sustainable recovery takes hold.
The price for Brent crude oil was down some 0.73% as of 8 a.m. ET to trade at $42.41 per barrel. Traders may be holding their breath on any big bets to the upside as parties to OPEC+ curtailments consider their next steps, though there’s plenty of news to digest.
OPEC Secretary General Mohammad Barkindo said Monday the general consensus seemed to be for a gradual easing of restraint from 9.7 million barrels per day in collective curtailments to 7.7 million bpd by December.
“The gradual reopening of the economies and societies around the world has provided a much-needed resurgence in demand,” he said. Yet, in its monthly market report for July, the organization said it expected 2020 global oil demand to fall by 8.95 million bpd.
An ill-timed price war between Russia and Saudi Arabia left the market flooded with oil, eventually pushing the US benchmark for the price of oil deep into negative territory. Restraint has been met with relative stability in the price of oil so far this quarter. Russia, one of the architects of the restraint movement, has been signaling for weeks that it was ready to start producing again, however. In Germany, the ZEW indicator of economic sentiment found that optimism was indeed bubbling up as the assessment improved slightly for the second time this year.
“After a very poor second quarter, the experts expect to see a gradual increase in gross domestic product in the second half of the year and in early 2021,” ZEW President Achim Wambach said in a statement.
Elsewhere, British GDP contracted 19.1% during the three months to May. And while second quarter figures show a rear-view image, the British Office for National Statistics reported the nation’s economy was struggling. With social restrictions still in place, some segments of the economy “remained in doldrums,” statisticians said.
That gives credence to the view from Delta Air Lines. With travel restrictions in place across the globe, jet fuel demand was among the hardest hit by the quarantine economy. OPEC economists in their monthly report for July stated that demand for gasoline and diesel is expected to soar, though jet fuel demand is expected to only partially recover. With demand effectively crushed, Ed Bastion, the CEO of the airline, said his company posted a loss of more than $11 billion compared with last year.
“Given the combined effects of the pandemic and associated financial impact on the global economy, we continue to believe that it will be more than two years before we see a sustainable recovery,” he said in a statement.
And not to be outdone, Jamie Dimon, the head of JP Morgan, said it’s far from certain what happens next.
“Despite some recent positive macroeconomic data and significant, decisive government action, we still face much uncertainty regarding the future path of the economy,” he said.
With several state and national leaders across the globe reintroducing social restrictions amid a stubborn pandemic, the demand picture is far from sunny. OPEC ministers meet over the next two days to consider what to do with output. This time, it needs something much more than a Goldilocks moment to get it right.