The Daily Dose; Economic Weakness Limiting Oil Gains

-US economy is in stand-still mode

-Hurricane Laura spares much of Texas, though don’t ignore its impact.

A down day in the Asian markets spilled over into morning trading in the US to help drag the price of oil lower. Crude oil prices have barely moved mid-week as traders had already bet in the impact of storms in the Gulf of Mexico. Hurricane Laura looks to be sparing much of the Texas shale patch, though refining activity could still take a hit as the storm moves up the Mississippi Valley. Even as the market stabilizes around $45 per barrel, shale looks unattractive. But the market may be looking in the rear-view mirror on revised GDP and jobs data in the United States. Elsewhere, both China and Russia are issuing missile threats to the United States and the West.

A weak global economy is keeping a lid on demand, leaving the price of oil stuck in a narrow tunnel around $45 per barrel. The market is up on the week, though largely on the temporary factors from Hurricane Laura. Brent crude oil was actually down, however, by 0.56% to hit $45.90 per barrel as of 8 a.m. ET.

Hurricane Laura looks to sparing parts of eastern Texas, though refinery activity in PADD 3 is still heavily impacted. S&P Global Platts finds seven refineries are shut down, idling about 2.3 million barrels per day in capacity. Offshore and the Bureau of Safety and Environmental Enforcement finds 84% of the oil production and 61% of total natural gas production is offline, flirting with the record levels from Hurricane Katrina some 15 years ago. Elsewhere, the Marine terminal at the Louisiana Offshore Oil Port is closed, Houston shipping lanes are down, though the port at New Orleans remains open in a limited capacity. Laura’s path is similar to Hurricane Rita in 2005, which dropped an $18 billion bill on the region in the form of infrastructure damage.

The market impact from Laura was apparent earlier in the week, with Brent jumping 3.4% over the first two trading days of the week. Gains have largely been muted since then by signs the global economy remains weak, an indication that demand destruction continues. Asian markets ended on a bit of a down note, with the Nikkei slipping by 0.4%. The Japanese government said its economy, the third-largest in the world, was showing signs of recovery, though it remains in a “severe situation” because of the pandemic. Traders will be looking at US hirings, which seem to be standing still, and revisions to second-quarter GDP, which is expected to come in at negative 31.7%, better than forecast. Trading, meanwhile, may be on the thin side ahead of the start the financial meetings in Jackson Hole, Wyo. US Federal Reserve Chair Jerome Powell is expected lay out the case for higher inflation while urging a gridlocked Congress to put more money into the US economy. In terms of the energy sector, the situation has not improved enough to entice investors to make bets on shale acreage in the southern United States.

The United States, meanwhile, finds itself internally divided and externally harassed. Allies of US President Donald Trump tried to present his challenger, former Vice President Joe Biden, as the wrong choice for a country in flames. Racial tensions and police brutality are on display in Wisconsin, though Trump’s political supporters suggested it would be much worse under a Biden presidency. While no friend of the Trump administration by any means, noted New Yorker columnist Susan Glasser makes a point.

“America right now has: deadly pandemic, massive unemployment and recession, schools unable to open, protests over racial injustice, a killer hurricane bearing down on the South,” she wrote. “And I am watching (Vice President) Mike Pence talk about how bad things would be in Joe Biden’s America.”

In foreign affairs, the situation is no less severe. China is openly challenging US military superiority in the Asia-Pacific. After saying a Cold War between the two superpowers was in nobody’s best interest, China fired four ballistic missiles in the South China Sea, close to where US naval carriers carried out military drills in recent weeks. Both sides are vulnerable to the Thucydides Trap, where defense turns to offense and runs the risk of war. Elsewhere, the Syrian civil war continues to pit the West against the rest. US and Russian officials are pointing fingers after vehicle collisions in eastern Syria left several US troops injured. On Thursday, a Russian military developer said its supersonic Hermes long-range missile system could devastate Western defenses.

“Following the results of a full cycle of the Hermes trials at the proving ground with the destruction of various types of targets, a conclusion was made that just one missile of the system will be enough to reliably eliminate any existing Western tank,” an unnamed representative from the Shipunov Design Bureau of Instrument-Making told Russian news agency TASS.


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