-US economy hangs at a precipice
-Heightened Sino-American tensions emerge at a pivotal moment.
Comments from the head of oilfield services company Baker Hughes were indicative of the state of the economy, with pessimism abound. The Baker Hughes rig count has at times been the darling of market watchers looking at the health of the oil sector. With small- and medium-sized players faltering under the strain of the quarantine economy, we now must contend with a myriad of factors beyond upstream operations, though comments from the company’s top brass are telling. Japan on Wednesday raised its economic forecast, but warned of trouble ahead given the risk of a second wave of coronavirus infections. The United States, meanwhile, is already well in the grips of the pandemic current. With political distractions largely isolating the United States from the international community, and with the world’s largest economy on the precipice of disaster, new and rising tensions with China could complicate any hopes for recovery.
Brent crude oil prices were sinking in early Wednesday trading on signs of a continued glut in the United States. And despite some optimism from Japan, the world’s third-largest economy, that market focus is squarely on trouble in the United States. The global benchmark for the price of oil was down 1.5% as of 8 a.m. ET to trade at $43.67 per barrel.
Baker Hughes reported its second consecutive quarterly loss on Wednesday, showing revenue for the period ending June 30 at $4.7 billion, down 13% from the previous quarter and 21% lower year-on-year. In its latest drilling productivity report, the US Energy Information Administration reports that only the Bakken shale formation is expected to show an increase in output for August, though that projection is complicated by legal efforts to plug the Dakota Access pipeline. With the low oil price environment creating headwinds for the US energy sector, Baker Hughes Chairman and CEO Lorenzo Simonelli said his outlook was “extremely limited.”
“More specifically, the risk of a second wave of virus cases, the reinstitution of select lockdowns, and the risk of lingering high unemployment creates an uncertain economic environment that likely persists through the rest of 2020,” he said in a statement.
US President Donald Trump in his first briefing on the pandemic in months acknowledged cases would continue to rise before the situation improved.
“It will probably, unfortunately, get worse before it gets better,” he said late Tuesday.
That’s an abrupt change in rhetoric from a president who said only last weekend the virus would somehow “disappear.” That latent acknowledgement of real problems is not isolated to the Cabinet level, however. The strings of the massive social safety net that’s helped prop up the US economy unravel at the end of July, cutting unemployment insurance by more than half and leaving those without a steady paycheck exposed to foreclosures and evictions. Unlike their counterparts in the EU, US lawmakers have shown no signs of a compromise and time is running out. Michael Strain, an economist at the right-leaning American Enterprise Institute, told The New York Times the sudden collapse of social support will be jarring for an economy the Federal Reserve Bank of Atlanta expects to shrink by more than 30% in the second quarter.
“Right now, there’s no question that the positive economic effects of those payments are outweighing the negative economic effects,” he said in comments published Wednesday.
That followed a data from the American Petroleum Institute that showed demand from gasoline and distillates, which includes diesel fuels, improved. Crude oil inventories, however, showed a glut of some 7.5 million barrels for the week ending July 17, pulling global indices lower in early morning trading.
Internal crises in the United States, meanwhile, make it difficult for policymakers to coordinate an effective foreign policy strategy. Trump’s ascent to power, you’ll recall, was in large part centered on a domestic agenda meant to reverse the perceived inequities of the liberal economic order. Parallels between economic momentum and the momentum of state power were highlighted on these pages earlier this week. The analogy can be made to driving an automobile. On the straight and narrow sweet spot between collapse and ascendancy, steering is easy. At the zenith or the nadir, however, it’s easy to over- or under-correct and drive off the road. That hairpin corner is where the United States finds itself in the late stages of the Trump era. And it’s through that lens that the decision to order China to close its consulate in Texas must be examined. The trade war between the United States and China had already damaged the global economy. Any further strategic escalation could leave either power in retreat and the consequences will be detrimental to an already eroding sense of normalcy no matter which side wins.