The GERM Report

-Chart for Brent is flatlined

-Mind the caveats from the Bank of England.  

Traders cherry-picked an assessment from the OECD that the global economy would fare better than first expected, ignoring the pessimism from early in the week from BP, the IEA and OPEC. A drain on US commercial crude oil inventories and gasoline, meanwhile, helped support a surge in the price of oil. There should’ve been some headwinds from the long wish-list rolled out by the US Federal Reserve on how to support the economy, though much of that concern may be baked in already. The Bank of England gave it both ways too, suggesting there were flickers of forward momentum amid a cloud of uncertainties. Much of the focus today will be on OPEC+ meetings, with analysts early in the morning combing over production figures amid data showing discipline was lacking. In the international arena, the head of the UN-backed government in Libya said he would quit and France continues to fret over the lack of political progress in Lebanon.

The price for Brent crude oil rallied 4.1% in the previous session in break-out fashion to close trading at $42.22 per barrel. The price oscillated around the upper $41 per barrel line as the market reconsidered the previous rally. Brent was stuck in early trading as investors waited for OPEC assessments, posting literally no movement at 8 a.m. ET to trade at $42.22 per barrel.

British energy company BP this week declared peak oil, and both OPEC and the IEA lowered their immediate forecasts for economic growth. US Fed Chief Jerome Powell, meanwhile, said there’s not much left in his arsenal, calling on congressional leaders handicapped by politicking to save the day. That is not good news. The US market had some support from a drain on all major petroleum categories, though much of that data were skewed by storm activity in the US Gulf of Mexico. The OECD, meanwhile, revised its forecast for global GDP higher, pumping some positive sentiment into the market. That said, the OECD said the contraction will be durable, with most major economies ending 2021 worse off than at the end of 2019. Stock futures in the US market are on a downturn, though, so today may see some correction in commodities as traders take a closer look at the data.

Data on hiring in the United States will be a factor in Thursday trading, though it seems like additions to payrolls are stalling. Elsewhere, and it looks like the manufacturing index from the US Federal Reserve Bank of Philadelphia is turning lower. For the other side of the Atlantic, the Bank of England gave a dour assessment on the road ahead. For the third quarter, the bank expects GDP to come in some 7% below fourth quarter 2019. A statement from the bank should serve notice to those trying to distill trends during these incredibly volatile times.

“Recent domestic economic data have been a little stronger than the committee expected at the time of the August report, although, given the risks, it is unclear how informative they are about how the economy will perform further out,” its statement read.

British economic momentum is complicated by last-minute changes to the exit plan from the European Union. Both European and US free-trade agreements could be in jeopardy. The uncertain outlook makes for a tough week for the committee monitoring compliance from the handful of producers working under the OPEC+ umbrella. Producers from Iraq to the United Arab Emirates have said on paper that they will make of for a past lack of discipline, though the decision by some producers to lower their official selling price for October loadings suggests otherwise. The lower OSP smacks of a quest for market share among bargain hunters rather than a show of discipline in voluntary curtailments. Already, it seems as if OPEC+ got caught up in the wave of premature optimism during the summer by relaxing curtailments by some 2 million barrels per day. It’s unlikely that OPEC+ will tighten its belt again, so the consensus seems to be that a crackdown on underperformers will be the only major outcome from this week’s meetings.

Meanwhile, there’s no shortage of trouble in the broader Middle East region, and much of that trouble has a direct impact on the market. Khalifa Haftar, the rogue military general and former CIA asset who is the face of the opposition government in Libya, said recently that oil could start flowing again from the North African producer. That could complicate OPEC+’s balancing act if Libyan barrels wind up on the water again. Adding to the uncertainty now is an announcement from Fayez al-Sarraj, the head of the UN-backed legislation in Tripoli, that he will step down in October. Given Libya’s fragility, hopes may be fading for a quick political turnaround in a country mired in civil war. Elsewhere in the Mediterranean and France is growing impatient with political reform in Lebanon. Last month’s explosion at the port at Beirut left long-term corruption in the Lebanese government exposed, though it seems as if Lebanon lacks an alternate ruling elite to come in and fix the mess. That’s important because the intersecting geopolitical interests that run through the country make it a battleground between pro-Iranian interests, European ambitions and the United States, which has consolidated a decidedly anti-Iran bloc via Arab warming to Israel. Iran, already frustrated by sanctions and new demarcations in the region, is complaining to the United Nations that US financial pressure is having a disproportionate impact on the welfare of its people. And rounding out the region, political turmoil is abundant in the Ivory Coast that deserves attention. West African nations are home to some of the larger emerging oil basins in the world and political turmoil could complicate the investment potential, particularly given the overlapping interests offshore.