-US employment figures mask underlying weakness
-Oil market downturn means some reserves no longer count.
Crude oil prices moved largely on US news in the previous session, with another sizeable draw on commercial crude oil inventories supporting the bulls. The direction for commodities was determined again by the US economy on Thursday, with weekly jobless claims coming in slightly better than expected. Those estimated 1.2 million who lost their jobs last week (that’s like everyone in the city I live in getting laid off all at once) will be without the federal support that helped prop up the economy in the last quarter. Tax relief for US households expires at year’s end too, and analysis continues to point to more trouble ahead. Outside the United States and the Bank of England said it too expected a rough road ahead. India’s central bank, meanwhile, reported that economic activity had recovered from the low-water mark in May, though a second pandemic wave is crashing over its economy. And with the dust settling in Beirut, expect the finger pointing to start and unravel an already-fragile government.
The price of Brent crude oil was flat early in the session, posting just an 0.04% loss to $45.15 per barrel at 8 a.m. ET. The market moved Wednesday on reports of a drain in US crude oil inventories, thought part of that drain may be due to lower imports to a weakened economy.
Weekly jobless claims came in at 1.18 million last week, better than the forecast for 1.4 million in new filings. Pre-pandemic claims were usually around the 200,000 mark and more layoffs can be expected with parts of the US economy reverting to lockdown. Private payroll processor ADP reported new hires in July were far worse than expected. US President Donald Trump, however, suggested in a Fox News interview on Wednesday that hirings would surprise on the upside. He may be disappointed. The latest report from placement firm Challenger, Gray & Christmas found that at 262,649, hiring in the United States last month was 54% lower than in June and a staggering 212% higher than this time last year. In an ominous note, the company said the situation will only get worse for the US economy.
“The downturn is far from over, especially as COVID cases rise around the country,” senior Vice President Andrew Challenger stated. “Consumers are buying fewer goods and services, businesses are closing, and bankruptcies are rising.”
The pain, however, is not limited to the United States. The Central Bank of England said it was keeping rates near zero in order to support cheaper loans for households and businesses. Stress tests show the British banking sector is strong enough to keep lending, but that’s not necessarily good news. More lending will be necessary as the British economy continues to feel the strain of the pandemic.
“COVID-19 is reducing jobs and incomes in the UK,” its statement read. “It has also put a big strain on UK businesses’ cash flow, and is threatening the livelihoods of many people.”
India’s central bank, meanwhile, left its lending rate unchanged at 4.25%. A survey of analysts from the Reuters news service finds the economy is expected to contract by as much as 9.1% this year, it’s worst collapse in 40 years. That bank’s governor said negative growth is expected to continue for the foreseeable future, adding that some metrics were painting a surreal picture.
“Global financial markets, however, have been buoyant, with the return of risk-off sentiment inserting a disconnect from the underlying state of the real economy,” its statement read in part.
Brazilian unemployment hit 13.3%, its worst in three years. Few of those metrics support a bullish sentiment on oil, though India’s observation of the surreal movement is telling.
That sentiment supports the rush to safe-haven assets like gold, which has been on something of a run as of late. The pressure is having a profound impact on the oil and gas sector, so much so that supermajors such as BP are looking more at renewables than the conventional fuels that kept it afloat for the past 111 years. In a filing with the US Securities and Exchange Commission, US supermajor Exxon Mobil said the low price of oil so far this year means that “certain quantities of crude oil, bitumen and natural gas will not qualify as proved reserves at year-end 2020.” Capital spending for the company is expected to be around $23 billion, some 30% lower than its earlier peg.
Lebanon, meanwhile, received French President Emmanuel Macron on Thursday. The French president toured the scene of Tuesday’s devastating explosions at Beirut’s ports. With the dust settling, a population frustrated with decades of political dysfunction are letting their feelings known. The Lebanese political system is dysfunctional by design, with power-sharing arrangements leaving the legislature prone to in-fighting rather than threatening its neighbors. Lebanon has more experience with internal chaos than stability since the French mandate ended in 1945. Long a parent of sorts still to Lebanon, the French president said the crisis extended well beyond the immediate impact of Tuesday’s blast.
“We can’t do without telling each other some home truths,” he said. “If reforms are not carried out, Lebanon will continue to sink.”