The GERM Report

-US at war with itself as economy falters

-German manufacturers see headwinds from US policies

Crude oil prices were in rally mode after US data suggested a sizeable draw on commercial crude oil inventories. The threat of a tropical storm in the US south, meanwhile, is adding tailwinds to the price of oil. The market focus will be on sentiment from the US Federal Reserve, but with no major decisions expected, it may be left to a US lawmakers to pump more money into a faltering economy, though hopes there are fading. The US breakdown, meanwhile, leaves geopolitical gains ripe for the picking. Libya, one of Africa’s largest oil prices, is concerned that foreign mercenaries continue to wreak havoc on oil fields. Further north in the Mediterranean and Lebanon is descending into chaos just as Iran is feeling emboldened in the region. Germany, meanwhile, says its expecting headwinds for investment in the US economy.

The price for Brent crude oil was up 1% as of 8 a.m. to hit $44.08 per barrel ET after the American Petroleum Institute reported a sizeable draw on commercial crude oil inventories in the United States. Brent has been range-bound for most of July, though deteriorating economic conditions could suggest a zenith for crude oil is on the horizon.

The API late Tuesday reported a 6.8 million barrel draw in commercial crude oil inventories, but a 1.1 million barrel build in gasoline and a 187,000 barrel build in distillates, which includes diesel. Gasoline consumption in the United States could be impacted by the return to lockdowns in some state economies and a recent heat wave. That US National Hurricane Center, meanwhile, notes that potential Tropical Storm Nine could dump massive amounts of rain on Florida, though wind hazards will extend well beyond the center of the storm. Outside of the United States, refineries in India too are slowing down after demand destruction sets in once again. Demand signals in the world’s leading economies could be skewed somewhat by China’s steady appetite for cheap crude oil, though consultant group Wood Mackenzie this week reported the broader Asia-Pacific is weakening under the strains of the pandemic and other systemic pressures.

US Federal Reserve Chairman Jerome Powell takes the podium early this afternoon in the United States to offer a read on an economy already deteriorating under the strains of political polarization and a botched federal response to the pandemic. No major policy decisions are expected from the Fed, however, as near-zero rates leave it with few other tools in its arsenal. That leaves it to US lawmakers, who are distracted by the politicization of social unrest and the federal posture on the coronavirus, to help steer the economy away from disaster. Democrats, who sit left on the political spectrum, wanted an extension of the current package, which boosted unemployment insurance by $600 per week. Republicans, on the right, argue the support meant some families were making more off than job that on it. A complex Republican package that seeks to offer the unemployed 70% of their former paycheck has become even more complicated as lawmakers inject wish-list measures into the bill. Now, even some Republican leaders are breaking ranks. US Sen Lindsay Graham, a Republican from South Carolina and devotee of the US president, said it would “quite an accomplishment” if all members of his party supported what’s on the table. Many of the social welfare programs boosted early this year expire on Friday, leaving the estimated 19 million people without a job facing difficult times ahead. Meanwhile, some 1,300 people in the United States died of complications from COVID-19 on Tuesday, the highest single-day total since May.

“The economic backdrop has changed notably since the Fed’s rate-setting committee met seven weeks ago, mostly for the worse,” Phil Flynn at The Price Futures Group in Chicago stated in his morning newsletter. “After surprising rebounds in employment in May and June, many states have seen significant increases in virus infections, leading to renewed curbs on certain commercial activities and a dampening of consumer confidence.”

The US descent from hegemony is having ripple effects across the globe. German companies with operations in the United States have expressed concern that protectionist measures meant to favor US workers over foreign labor could be impacting foreign direct investments. Manufacturing behemoths from Volkswagen to machine-builder Groninger say visa restrictions are an impediment to the day-to-day operations. German news service Deutsche Welle estimates that German companies and their 4,800 subsidiaries across the United States employ some 770,000 people in the country. While much of the recent increase foreign direct investment in the United States came from economies in the Asia-Pacific, it is the Europeans that dominate FDI. German parent companies were the fifth-largest investors in the United States last year at $372.9 billion. Hilde Holland, a board member at the German-American Chambers of Commerce, told DW the Trump administration was handicapped by a “a “naive fallacy,” adding visa restrictions are “an absolute catastrophe for businesses.”

On the African continent, Libya’s National Oil Corp. said it was concerned about the presence of mercenaries, some of which have ties to Russia, interfering with operations at its oil fields.

“NOC has also received reports of large numbers of mercenaries with military vehicles occupying the residential area of the Zallah oil field,” the company stated. “Another group is occupying a Schlumberger Company camp located close to the field.”

Libya has the capacity to export some 1 million barrels of oil per day, though civil war and foreign meddling has left many of those barrels idled this year. The NOC has only briefly lifted force majeure on its export facilities this year.

On the other side of the Mediterranean, Lebanon continues to descend into political and economic chaos. Walid Jumblatt, a veteran leader on the Lebanese political scene, said it may be time to replace the prime minister, only months after the divided legislature decided on a new government. Lebanon is tackling its worst financial crisis since its 15-year civil war ended in 1990 and the political fissures come as tensions along the southern border heat up between Hezbollah’s forces and the Israeli military. Iran, the Shiite power that provides much of the military support for Hezbollah, is flexing its muscles too. Iran has been carrying out naval and aerial military maneuvers near the congested Strait of Hormuz, showing a display of force after a commercial airline was diverted to avoid a US military aircraft earlier in July.