The GERM Report

-US inventory declines likely from lower imports after Saudi surge

-Trump claims on big job numbers was hyperbole.

The price trend for Brent crude oil is disconnected from reality. The global benchmark shot above $45 per barrel for the first time since early March on reports of a massive draw on US crude oil inventories. Tragic events in Beirut and storm activity in the United States likely added support for the bulls. Apart from that, however, there are few economic reasons to support gains thus far in August. Most major economies are in a deep contraction and more OPEC barrels are starting to show up on the market. China, however, is claiming its economy has performed better than expected.

The price for Brent crude was up a staggering 3.5% as of 8 a.m. ET to trade at $45.98 per barrel, the first time it passed the $45 mark since March 6. Most of the gains were supported by Tuesday’s late-afternoon report of an 8-million-barrel draw on US crude oil inventories from the American Petroleum Institute.

The API late Tuesday reported total commercial crude oil inventories in the United States fell by some 8.6 million barrels last week. Gasoline inventories dropped some 1.75 million barrels, though storage levels at Cushing, Okla., the delivery point for the US benchmark, increased by 1.6 million barrels. The level of distillates, which includes diesel, swelled by 3.8 million barrels. US crude oil imports likely took a nose dive as the economy weakened and the bloat from a surge of Saudi barrels comes off.

US President Donald Trump poured fuel on the fire in an early-morning interview with Fox News, seen as the administration’s mouthpiece in some circles. Looking to the end-of-week report on job levels, the president said a “big number” was expected. All of the jobs gained since the recession of the early aughts have been lost to the quarantine economy and the US unemployment rate is officially at 11%. Trump in the past scooped federal data by touting gains before official announcements, though his claims later in the interview that a vaccine for the coronavirus would be developed before year’s end suggests his comments on unemployment were more hyperbole than anything. The second wave of infections in the United States has forced some state economies to revert to lockdown rather than expand. Private payroll processor ADP reported the US economy gained some 167,000 jobs in July, well below expectations of a 1.5 million and drastically lower than the June report for 2.4 million.

“The labor market recovery slowed in the month of July,” Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said in a statement. “We have seen the slowdown impact businesses across all sizes and sectors.”

That took some of the sails out of the morning rally. At least some of the early-session gains were supported, meanwhile, by the tragic events in Beirut. Already buckling under the strains of the quarantine economy and tensions with Israel, the explosion of a massive cache of ammonium nitrate only added insult to injury. A series of blasts across the Lebanese capital Tuesday afternoon left more than 100 people dead. Early reports suggest negligence at port storage facilities was the likely cause, though the recent string of mysterious accidents near Iranian nuclear research facilities bears consideration. The explosions, meanwhile, came just days before a UN tribunal is expected to finger Hezbollah affiliates for the 2005 assassination of former Lebanese Prime Minister Rafik Hariri.

Elsewhere, China is touting its economic success while at the same time falling well short of its purchase commitments under the Sino-American trade deal. The GERM Report on Tuesday noted that China had purchased only 5% the energy products from the United States obligated in the trade arrangement. That does little to support the Trump administration’s platform of energy dominance and energy independence. Case in point; the White House has called for a halt in the fighting in Libya, pleading for the reopening of the country’s oil sector. China, meanwhile, continues its buying spree for cheap oil. And the first to fall in the pandemic may be the first to recover. The US economy in the second quarter shrank by some 30%. China’s National Bureau of Statistics reported second-quarter growth of 3.2% and the World Bank’s country director for China told the official Xinhua News Agency that the economy performed better than it expected.