The GERM Report

-Oil prices up on data cherry-picking

-It’s LNG this time around that gives us a good geopolitical picture.

Crude oil prices were again in rally mode after US data showed a draw on all major petroleum components. The selection of California Sen. Kamala Harris as the vice president on the Democrat’s ticket may also be boosting investor confidence. Tensions in the Soviet fringes of Europe, the Mediterranean and the Middle East, meanwhile, may be supporting the bulls with a risk premium. And don’t ignore political dysfunction in the United States. Elsewhere, and the picture does not look good. US energy products are not leaving shore, mortgage delinquencies are piling up and the British economy suffered its worst contraction on record.

The price for Brent crude oil was up 1.5% as of 8 a.m. ET to hit $45.17 per barrel. Brent may be flirting with resistance after running hot in general terms since the start of July. Expect a lot of volatility today, however, as traders comb through OPEC’s report for August, official US data on inventories, speeches from US Fed officials and examination of British GDP.

Early-morning movements for the price of oil were driven in large part by data from the American Petroleum Institute showing a 4.4 million barrel draw on total commercial crude oil inventories, a 1.3 million barrel drain on gasoline and a 2.9 million barrel draw on distillates, which includes diesel. Those all indicate demand is returning in the US economy, though oil inventories built up by 1 million barrels at Cushing, Okla., the delivery point for West Texas Intermediate. While higher than last year, US data show crude oil exports are on the decline. And according to the US Energy Information Administration, the quarantine economy in global terms suggests exports of US liquefied natural gas are not economical.

“According to trade press reports, 45 cargoes have been canceled for August shipments and an estimated 30 cargoes have been canceled for September shipments,” the EIA’s report read.

Speaking at a manufacturing facility in Ohio last week, US President Donald Trump touted the economic support from the US shale natural gas sector. Ohio sits on top of the Appalachia basin, the largest gas producer in the United States. The president claimed that United States could fail in Venezuelan fashion should his energy ambitions unravel. But some things are beyond the president’s control. EIA data show Appalachian production is expected to decline in August and total demand is collapsing. Trump has leaned heavily on a policy of energy dominance, so the LNG data is indicative of waning US influence overseas. Trump warned Germany about its dependency on Russian natural gas, but the lack of US exports show Moscow has an edge.

In that light, expect Russia to start flexing its muscles in the continental economy. We noted Tuesday that German sees the US stance on its gas purchases as a breach of sovereignty. And three years ago, German energy company Wintershall warned against energy adventurism in Europe.  In the middle aughts, gas disputes with Ukraine, and a Kiev pivot toward the European Union, prompted Russia to advance its interests by annexing the Crimean Peninsula. Those tensions are still apparent in the gas sector, with vessel trouble a frequent problem at Ukrainian ports. With social unrest continuing in Belarus, on the fringes of the Soviet sphere of influence, don’t be surprised if Russia has another go at a political grab.

As much of the financial news focuses on the US economy, the headline writers missed a few things. Data provider CoreLogic found that delinquency and foreclosures were on the rise.

“Government and industry relief programs have helped to cushion the initial financial blow of the pandemic for millions of U.S. homeowners,” Frank Martell, the president and CEO of CoreLogic, said in a statement.

Those programs have expired, however, and that adds to an already tense situation in the United States. Most major polls suggest Trump could face a resounding defeat in the November contest. Many of his Republican allies, such as Maine Sen. Susan Collins, may be on their way out the door and the state electorates that are usually in the Republican column are changing color. In what can only be described as a surreal assault on the core principles of US democracy, there are open questions about whether or not Trump will leave the White House if he’s defeated. Legal challenges to an election that hasn’t happened yet are already on the back of the bar napkins. Now, Trump is intent on crippling the US Postal Service as the pandemic means most voters will cast their ballots by mail. US post is facing massive bottlenecks as consumers turn more and more to online purchases over brick-and-mortar shopping. Trump, playing a strategy of voter fraud, appointed one of his megadonors to lead the USPS. There are vocal concerns, including those expressed by mail carriers themselves, that Trump is trying to bake fraud into the post office to support his eventual challenge to the election results. That should be a major concern, not only to constituents, but to foreign investors as well.