The GERM Report

-US jobless claims worse than expected

-Barclays, American Airlines see trouble ahead.

Warnings from investment bank Barclays and a grim outlook from American Airlines helped drag crude oil prices lower in early Thursday trading. The price for Brent finished the previous session more or less flat despite a sizeable build in US commercial crude oil inventories. Weakening prospects in the US labor market, compounded by political incapacity, creates a bearish outlook for oil, however. Geopolitical tensions, meanwhile, continue to tug at the power centers of the international community as the need to condemn adverse behavior butts up against global trade dependencies.

The price for Brent crude oil was down 0.3% as of 8 a.m. ET to trade at $44.17 per barrel. Intraday volatility has cooled off somewhat, though there could be a correction toward the downside considering internal and external tensions in the United States.

The quarantine economy and lockdowns stemming from the viral pandemic have limited travel options considerably, taking a serious toll on jet fuel demand in particular. American Airlines on Thursday announced it took a pre-tax loss of some $2.7 billion in the second quarter as demand hit the brakes, and Chairman and CEO Doug Parker said the second quarter was one of the most challenging in the company’s history.

“COVID-19 and the resulting shutdown of the U.S. economy have caused severe disruptions to global demand for air travel,” he said in a statement.

Economists at OPEC estimated in their latest monthly market report that jet fuel demand will remain under pressure through 2021 as, even if the pandemic eases, travelers are expected to exercise caution when considering moving outside their immediate social bubble. American Airlines in its quarterly report stated that demand improved since the market bottomed out in April, but remained well below 2019 levels.

“The company will continue to match its forward capacity with observed bookings trends and presently expects its third quarter system capacity to be down approximately 60% year over year,” its statement read.

Oil prices have recovered from their April lows to hold steady at around $40 per barrel for Brent for much of July. There was a brief respite, particularly in the United States, during the second quarter when coronavirus infections seemed to ebb. Now, the US president himself seems to be suggesting that state economies opened up too fast as cases in the US south and west run out of control. Barclays Commodities Research stated that if demand decelerates, particularly in the United States, then oil prices will correct to the downside.

“We are not there yet in terms of fundamentals for the next leg higher,” the bank’s note read in part.

The weak sentiment seems to have done little to encourage right-leaning lawmakers in the United States to extend the social safety net from earlier this year. Helicopter-money rained down on the US population early this year as the coronavirus outbreak was just reaching pandemic levels. Millions of people since then have lost their job, and American Airlines said it expects some 20,000 in redundancies yet this year. Lawmakers continued to work to resolve their differences just as weekly claims for first-time unemployment come in worse than expected at 1.42 million filings last week. Pre-pandemic weekly claims were usually closer to 200,000.

There are just over 100 days before the presidential election in the United States and recent policy decisions must be viewed through that light. With the pandemic raging, it’s highly unlikely the US economy will perform as President Trump has promised. Incumbents are typically supported during times of robust economic growth or by war. Constituents that feel secure about their economic-well being are unlikely to switch teams, but the quarantine economy clouds that potential for optimism. War then is a logical alternative as would-be-voters are similarly unlikely to opt for change when national security is threatened. At home, the United States seems to be at war with itself, with federal law enforcement agents accused of paramilitary tactics to dampen protests in major US cities. Some of these cities, according to President Trump, are “worse than Afghanistan.” Global tensions, meanwhile, are escalating toward a Thucydides Trap involving China and the United States. From Europe, leaders are stuck in a bind between trade alliances with China and concerns about its authoritarian political hand. US Secretary of State Mike Pompeo has tried to coerce allies into taking a tougher line on China after Washington ordered a Chinese consular office to close in Houston. China, however, is having none of it.

“In response to the U.S.’s unreasonable actions, China must make a necessary response and safeguard its legitimate rights,” a spokesperson for the Chinese Foreign Ministry stated.