The GERM Report

-IEA serves up something for everyone

-The market has a very, very short memory.

Crude oil prices softened in early morning trading on Thursday after the International Energy Agency lowered its forecast for demand for the first time in several months. Global supply, the agency said, is expected to fall, through refinery intake is recovering. That comes as Royal Dutch Shell announced it was no longer economical to operate a refinery in the Philippines. Meanwhile, the intersection between energy and geopolitics is getting dangerous as France and Turkey flex their muscles in the Mediterranean.

The price for Brent crude oil was stable early in the trading day, falling a barely-noticeable 0.1% as of 8 a.m. to hit $45.38 per barrel. The commodity has been on a bit of a hot streak, but stable from the 10,000-foot view. A better-than-expected jobs report from the United States, however, did little to support the price of oil.

As usual, there was something for everyone in the IEA market report. According to its analysis, new cases of coronavirus globally have steadied, though many major economies are reintroducing lockdown orders to contain a second wave of infections. Mobility data, meanwhile, indicates the world is more or less stuck where it is now, though demand recovery could be emerging in the continental economy in Europe. Diesel consumption is improving too as many consumers get more and more of their retail-therapy goods online, though on road-transport fuels, the IEA is unsure. Jet fuel demand, meanwhile, is almost absent. Again, a little bit of something for everyone.

This market has an exceptionally short memory. Early this week, the US Energy Information Administration reported that the market was so bad that exports of US liquefied natural gas were not economical. On the refinery side, Shell is sharing that sentiment, saying it could no longer afford to run some of its facilities in the Philippines. US supermajor Marathon already this month said it would not restart two of its refineries in western US states because of weak fuel demand. But according to the EIA’s report from Wednesday, refineries have ramped up production as demand improves. Ever the bull, Phil Flynn at The Price Futures Group in Chicago said it’s time to play the drain game.

“Demand is rising and supplies are falling,” he stated in his morning newsletter. That will help continue the bull market in crude oil.

That may be the case in the United States, particularly after weekly jobless claims dropped below 1 million for the first time since March. But, a lot depends on the pace of the pandemic. A law enforcement official on Florida recently barred members of his force from wearing face coverings. In South Dakota, hundreds of thousands of maskless motorcycle enthusiasts descended on the town of Sturgis for an annual rally. A tally compiled by the Reuters news agency, meanwhile, found new cases of coronavirus nation-wide dropped for three straight weeks, though the United States still accounts for a quarter of the cases worldwide. The coronavirus is getting politicized in the United States just ahead of what could be an ugly election in November. This suggests this surge in demand could coincide with a surge in new cases, putting the US economy on its back heels amid partisan gridlock.

Elsewhere, the connections between the energy sector and geopolitical issues run deeper and deeper. Greece said this week it may take the case of gas exploration rights in the Mediterranean to the Europeans after Ankara tried to stake its claim on offshore resources. The vacuum of overwhelming authority in the region has rekindled territorial aspirations for many leaders in the region. Turkey has long sought to capitalize on its strategic geographic position to play a more dominant role in the energy sector. France, emboldened by its deal-making abilities on economic issues and political opportunities in Lebanon, is trying to plant its flag more firmly in the eastern Mediterranean. French President Emmanuel Macron said the French military presence in the region would be enhanced to counter what he said were “unilateral” Turkish claims offshore. Should adventurism continue, there could be a real possibility of military skirmishes in the region.