The GERM Report

-Coca Cola shows us the economy isn’t doing well

-Hurricane Laura was a bit of a nothing burger for energy.

The price for Brent crude oil is on pace for a gain of around 2% this week, though much of that gain was due to the impacts of storms in the oil-rich Gulf of Mexico. Commodities were inching lower early in the Friday session on concerns about the fate of the Japanese economy and faltering growth in the United States. The sentiment in the European economy, meanwhile, improved, though Germany is sounding the alarm over the stubborn pandemic. And after getting center stage in the US political arena, Israel continues to flex its muscles in the Middle East.

The snooze-fest for Brent continues, with the global benchmark unable to break much higher than $45 per barrel. Most of the trading volume is focused on the November contract, also stuck at $45 something a barrel. It’s not until the January contract that Brent hits $46. With Hurricane Laura bruising some Louisiana refineries, but sparring most of Texas, the price of oil is stuck, trading down just 0.1% as of 8 a.m. ET to hit $45.55 per barrel.

Laura quickly lost strength after making landfall as one of the stronger hurricanes to hit PADD 3 in a century. The regional sector, home to about 50% of total US refining capacity, was fearing a rerun of Hurricane Rita, which caused some $18 billion worth of damage when it hit the area in 2005, but those fears were unfounded. Offshore production remains shut in, with some 84% of total US gulf production and 60% of the total gas output offline because of the storm. Operators are slowly starting to return to assess any damage, though it looks as if most of the sector was spared. According to a report emailed to The GERM Report by S&P Global Platts, both Citgo’s and P66’s refineries in Lake Charles, La., were still offline, as was Valero’s 335,000 barrel-per-day refinery in Port Arthur, Texas. Most other facilities in Texas have either restarted, or are preparing to restart. Most ports were open, albeit with some restrictions, though the LOOP offshore shipping facility in Louisiana won’t open again until the weekend.

In Asia, Japan’s Nikkei index contracted 1.4% after Prime Minister Shinzo Abe announced he was stepping down because of health reasons. So-called Abenomics, a mix of monetary easing, fiscal stimulus and reforms, helped put a wind in Japan’s economic sales and his plans for departure triggered a sell-off on Tokyo’s $5.7 trillion stock market. The day before Abe’s announcement, Japan’s 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. In June, the last full month for which data are available, Japan imported some 1.9 million bpd in crude oil, a 31% drop year-on-year and the lowest in roughly 50 years. Gasoline sales that month were the lowest since the early 1990s. The uncertainty sparked by the expected end of Abe’s tenure is certain to weigh on the market in early Friday trading.

In the United States, President Trump’s political party continued to paint a dystopian image of the country amid increased frustrations over police violence, racial inequality and a stubborn pandemic. Accepting the party’s nomination, Trump made little mention of the pandemic and, amid an uproar over lopsided justice in Wisconsin, said he’s done more from the black community than any other president. As new cases of the coronavirus remain stubbornly high, and as civil and political tensions boil over, the US economy is slowing down. With lawmakers unable to pass another round of stimulus, Coca Cola Co. announced Friday it was eliminating 4,000 from its payrolls in the United States, Canada and Puerto Rico. Layoffs remain high at around 1 million in new weekly claims, and data from Oxford Economics show the four states with the largest economies in the country, California, Florida, New York and Texas, are behind the curve when it comes to recovery. In tech stocks, meanwhile, analysts are wondering when the bubble will burst. Data from the Energy Information Administration show the four-week average of gasoline demand at 8.8 million bpd, down from the 9.78 million bpd this time last year.

German Chancellor Angela Merkel expressed concerns Friday about an uptick in coronavirus cases heading into the winter months. That, however, comes as the economic sentiment came in better than expected in August, apart from Spain that is. Significant growth is anticipated in the continental economy during the third quarter, but the rise from the ashes of negativity won’t be as meteoric during the fourth quarter. And like the United States, consumer sentiment remains low.

Elsewhere, and the adventurism continues. Emboldened after US Secretary of State Mike Pompeo delivered an address from Israel to Republican convention-goers, Israeli Prime Minister Netanyahu is lashing out at his enemies in Lebanon and in the Gaza Strip. A pivot by the United Arab Emirates towards Israel was cast by US powerbrokers as a step toward peace has resulted in seemingly the opposite effect. The region may be rattled further after the BBC found the UAE was behind drone strikes in January that left dozens of unarmed army cadets in Libya dead. And with Lebanon still coping with the devastation from the massive blast at the port in Beirut, the French government, the former colonial power, said the country was in the verge of “disappearing.” Turkey’s claim to gas drilling rights offshore Greece, meanwhile, is growing into a contentious issue among European leaders worried about the direction of the NATO ally. Do not underestimate the consequences of geopolitical tensions.