The Daily Dose; Wake Me Up When Oil Prices Get Unstuck.

-Up again, down again. Up gain, down again.

-Belarus could be the next Ukraine.

The price of oil is in stand-still mode as traders and investors take a wait-and-see approach ahead of Wednesday’s meeting of the committee monitoring OPEC curtailments. So far, parties to the agreement to trim some 7.7 million barrels per day from the market are in near-total compliance. The needle jumped on Monday, even after Japan reported its sharpest economic contraction on record. The price idling Tuesday morning may be reflective of traders moving into the front-month contract, particularly for US crude. There’s not much on the economic calendar Tuesday apart from US housing data, though analysis from Wood Mackenzie finds possible clouds building on the horizon for crude.

The price for Brent crude oil is in a slow drift downward in early Tuesday trading, after running up some 1.3% in the previous session. Geopolitical issues continue to weigh on the market, though its Wednesday’s OPEC meeting that remains the focus. Brent was down some 0.2% as of 8 a.m. ET to hit $45.28 per barrel.

Equities markets, apart from the tech-heavy NASDAQ, were flatlined on news that right-leaning Republican senators in the United States tabled a soft stimulus package. Social and political divisions are on display as lawmakers debate another round of economic support during the pandemic. The tens of millions of US taxpayers off the payroll saw their biweekly unemployment insurance checks shrink by $600 and eviction moratoriums cease at the end of July. Non-economic issues such as funding the US Postal Service, however, are complicating political negotiations. Democrats, who sit on the left of the political spectrum, wanted the $600 in extra support extended, though Republicans tabled only $300 in extras, less than in previous packages. US lawmakers are in recess, however, and won’t vote on anything until next month.

In other economies news, US housings starts and new-home builds are showed a rebound as more and more people flee the big cities. Looking ahead to Tuesday afternoon, it’s expected that preliminary data will show another draw on US commercial crude oil inventories, perhaps to the tune of a 6 million barrels for the week ending Aug. 14. If the estimate is verified by the US Energy Information Administration, expect the price of oil to react in bullish fashion.

But that’s not necessarily how analysts at consultant firm Wood Mackenzie see things for the long term. On Monday, Ole Hanson, the head of commodity strategy at Dutch investment firm Saxo Bank, said that if oil prices don’t break out soon, they may be due for a correction. Dulles Wang, a researcher at Wood Mac, said that in the US shale patch, the financial pressures from the pandemic may be too much to handle for some operators. In its base estimate, the firm expects the price of Brent to recover to $86 per barrel in real terms by 2030, but a sustained pandemic in the form of a “second wave” brings that down to $70 per barrel.

“Our H1 2020 outlook anticipates an oil price rebound as demand starts rising post-coronavirus,” Wang stated. “However, a second large-scale lockdown would deepen the recession, and possibly delay any rebound in GDP until 2022.”

On energy security, the situation in Europe may take a turn for the worse. When Ukraine started to pivot toward the Europeans in the middle aughts, and after a payment crisis between Kiev and Moscow triggered gas shortages, Russia intervened and claimed the Crimean Peninsula as its own. The European market is looking to more secure forms of natural gas, though much of that gas travels through troubled territory. Dubbed the last of the dictators, Belarusian ruler Alexander Lukashenko is seeing his grip on power slip amid widespread protests. In power for a quarter century, concerns about the fairness of the latest election have boiled over and the durability of his tenure is in doubt. Worried about a waning sphere of influence, Russian President Vladimir Putin warned in no uncertain terms that Belarus was his.

“The Russian side stressed that any attempts to interfere in the country’s domestic affairs from the outside leading to a further escalation of the crisis would be unacceptable,” the Kremlin’s readout of a call with German Chancellor Angela Merkel stated.

Should turmoil erupt on the Soviet fringe, legacy oil and gas infrastructure will once again be at the center of conflict.


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