-European economy under renewed COVID-19 pressure
-The UN General Assembly gives us a clue about the mood in the room.
Market direction for the price of crude oil remained unclear in early Wednesday trading after the American Petroleum Institute reported a mixed bag for oil and petroleum products. Apart from a resilient pandemic dragging on demand, confidence in the continental European economy is waning. For products, however, novel use of cheap distillates could alleviate some of the demand concerns, though that’s only in relative terms. On the supply side, more vessels are lining up offshore Libya to take on oil, challenging OPEC’s effort to balance the market. The global weakness, meanwhile, may deter compliance among the parties to OPEC’s balancing act. Elsewhere and diplomatic showmanship was on display at the virtual UN General Assembly meeting, with national leaders questioning the wisdom of the new world order.
Trading trends for Brent crude oil show the price keeps challenging the $42 per barrel consensus from early September, but avoiding the sub-$40 doldrums from early last week. Indices for the price oil showed no clear direction early in the trading day. The price for Brent crude oil was spinning around even overnight. As of 8 a.m. ET, the global benchmark for the price of oil was up only 0.07% to trade at $41.75 per barrel.
The American Petroleum Institute reported US commercial crude oil inventories increased 691,000 barrels during the week ending Sept. 18, though gasoline drew by 7.7 million barrels and distillates, which include diesel, was down 2.1 million barrels. Analysts expect the US Energy Information Administration to report a 3.3 million barrel drain on US crude oil inventories when it releases data at 10:30 a.m. ET. Gasoline, and to some extent diesel, are reflective of consumer patterns by way of road travel and the movement of goods, respectively. Refiners can’t make one without the other, however, and the hammered commercial airline segment has left distillates like jet fuel at bargain-basement prices. Jet fuel demand isn’t expected to return to pre-pandemic levels for several years, suggesting discounts will be long term. But there’s a silver lining, providing maritime traffic is healthy; refiners are using jet fuel as a blendstock to make the ultra-low sulfur fuel oil shippers need to comply with the IMO 2020 rules meant to limit emissions from the global fleet.
Novel product usage won’t do much to alleviate demand strains, however. Jet fuel used to be one of the more expensive commodities, after all. While most of the media attention has been on the dismal US response to the pandemic, a tally Wednesday by Agence France Presse finds positive cases of the novel coronavirus in Europe topped 5 million. The stubbornness of the pandemic is showing up in the economy. German consumer confidence increased only modestly and remains at its lowest level in more than 20 years. For the broader continental economy, IHS Markit put the composite purchasing manager’s index at 50.1, just north of the line separating growth from contraction. Europe looks to be taking one step forward and one step back, with a gain in manufacturing offset by weakness in the services sector. Recovery is evident, though recovery from record lows is easy. Meanwhile, with no shortage of officials from the US Federal Reserve on tap today, we’ll get a pretty good indication of how things look in the world’s largest economy. Already, some Fed officials have suggested their arsenal is empty.
On the supply side, and Libyan concerns continue to percolate through the market. We’ve already seen Hess Corp. book cargo for the light-sweet hungry European economy. A breakthrough of sorts occurred last week when Khalifa Haftar, a military leader and face of the opposition government in Libya, said crude oil could flow once again. Taking the cue, the country’s National Oil Corp., on the side of the UN-backed government in Tripoli, lifted the force majeure declarations that kept oil at port more or less since January. The tanker Delta Hellas is at, or still en route to, the Libyan port of Marsa al-Hariga to load some 1 million barrels of crude oil. Another tanker, Marlin Shikoku, is on its way.
The Libyan splash is concerning for OPEC looking to balance a market haunted by chronic demand destruction and oversupply. At issue for many producers party to OPEC+ curtailments is they rely heavily on oil exports to prop up state coffers. Tacitly looking to gain market share, Iraq, which depends on oil for nearly all of its state budget, recently lowered its official selling price to entice bargain shoppers. Angola, though a minor oil producer in relative terms, could join the crude-for-sale crowd too. The International Monetary Fund noted that, like the US Federal Reserve, Angolan bank officials are out of ammo.
“The monetary stance has been eased to help counteract the impact of the COVID-19 pandemic and the oil-price shock,” IMF economist Antoinette Sayeh stated. “However, there is little room for further monetary easing and the (Central Bank of Angola) should stand ready to keep inflationary pressures in check.”
Russia, however, which holds sway among OPEC+ policy makers, may be unwilling to budge enough to allow for some wiggle room on constraint. Alexander Dyukov, the head of Russian oil company Gazprom Neft, said $40 per barrel was rather comfortable and expressed no real concerns about a repeat of the April calamity that saw oil prices fall into negative territory.
Meanwhile, while not necessarily indicative of real market issues – and largely ignored by the mainstream headline writers – the UN General Assembly provides us with a sense of the mood in the room. Iranian President Hassan Rouhani in a video message to the virtual assembly said the stance at the UN Security Council against US sanctions on his nation showed the United States, rather than Iran, is increasingly isolated.
“It is a victory not just for Iran, but for the transition period of the international order in the post-western world, that the regime that boasts of having hegemony has been mired in such self-made isolation,” he said.
The demarcation between friend and foe was evident in Qatar’s stance too. Speaking of the Arab pivot toward Israel, Qatar Emir Sheikh Tamim bin Hamad al-Thani said the loss of the Palestinian cause in the diplomatic alignment was unfortunate.
“Failure to find a just solution to the Palestinian cause, Israel’s continued settlements, and forcing a reality on the ground without being deterred, this is what raises the biggest question about the credibility of the international community and its institutions,” he said.