The Daily Dose; Rally eases on possible Norwegian breakthrough

-Norwegian strikes could end by the weekend

-US tariffs are biting at home  

While Hurricane Delta has sidelined almost all of the oil production in the US waters of the Gulf of Mexico, crude oil prices were in retreat in early-trading Friday. A double-digit rally on the week and signs that a labor strike among oil workers in Norway could be ending triggered selling behavior early in the Friday session. There could be some underlying support, however, as OPEC looks like it will stand pat on current-level production curtailments. That will have something of a balancing effect given the prospects for a sluggish economic recovery. In the United States, the political firestorm intensifies following the revelation of a plot to kidnap Michigan’s governor and Trump critic, Gretchen Whitmer. President Trump, meanwhile, may have thrown a wrench in the economic and political gears with tariff action. Elsewhere, it looks like the economy in India is on life support while trouble brews in Central Asia and the Caucasus.

A week of temporary factors that limited global supplies helped push the price of Brent up some 9% so far on the week. Selling was in vogue early in the trading session, however, after several days of significant gains. The price for Brent crude oil, the global benchmark, was down about 0.8% as of 8 a.m. to trade at $43.02 per barrel.

Hurricane Delta is a category 3 storm packing sustained winds near 120 miles per hour (195 km/hr) with landfall imminent. The US National Hurricane Center estimates the hurricane-force winds extend some 40 miles from the center and tropical-force winds extend outward some 160 miles. Area refiners and producers have been making preparations to secure their assets for much of the week, supporting the bullish trend in crude oil prices so far. British supermajor BP implied Thursday that it evacuated all of its offshore platforms and shut in production. According to the Bureau of Safety and Environmental Enforcement, 91% of the total US oil and 62% of gas production from the Gulf of Mexico is offline. For oil, that translates to about 1.7 million barrels and marks the sharpest storm-related contraction in some 15 years.

Delta’s slow march toward PADD 3, one of the more important oil districts in the United States, added a premium to the price of oil for much of the week. That’s particularly important for the market as the appetite for US crude on the global market increases. On the other side of the Atlantic, a strike among offshore workers in Norway threatened to cut as much as 1 million barrels of oil equivalent from the market. The strike had sidelined about as much as Norway increased production from last year, though the possible closure of the giant Johan Sverdrup field was a disruptive factor this week. The head of a Norwegian labor union told the Reuters news service on Friday that there were hopes, however, that the strike would end before the weekend. On balance, however, it looks like things will settle down long-term as OPEC reconsiders a phased drawdown to production restraints.

Much has been said in the financial press about the massive increase in GDP figures from the third quarter. In the United States, third quarter GDP looks to post a 34% gain sequentially, while the eurozone can expect growth closer to 40%. But sequential figures are misleading given the massive economic destruction caused by the pandemic. Among major economies, only China is expected to see GDP growth year-on-year. Burdened by a messy departure from the European Union, the British economy could shrink by as much as 9% on the year, while the United States is on pace for a 3.4% contraction from last year. On Thursday, the Organization for Economic Cooperation and Development found composite leading indicators (CLIs) from September for most major economies showed recovery, but the pace of recovery has slowed.

“With the resurgence of COVID-19 cases in many countries, there remains considerable uncertainty around the possibility of future mitigation measures that may curtail economic activity, and which may not be fully factored into current indicators used in the construction of the CLIs,” the OECD’s report read. “As such, this month’s CLIs should continue to be interpreted with care.”

Even with silver linings, top central bank officials are running out of tools to keep their respective economies moving in the right direction. India’s central bank kept its interest rates near zero, to no surprise. Economists at ING, however, said bank optimism is irrational and confidence in the nation’s economy was fading. US Federal Reserve officials have said it’s up to lawmakers to come up with something to keep capital moving. On Friday, President Trump again tried to control the narrative by suggesting a breakthrough was possible in pending stimulus talks with House Speaker Nancy Pelosi. This close to the election, however, we need to view any and everything as politicking more than actual legislation.

Elsewhere in the US economy, and Tariff Man may see his actions come back to haunt his election odds in key battleground states. US Commerce Secretary Wilbur Ross on Friday announced a new phase of tariffs on aluminum sheet, accusing Germany, Bahrain and a handful of other countries of dumping cheap products on the US economy. Tariffs indeed work to support domestic industries, but it’s risky business. Economists as US universities estimate Trump’s trade-war strategies cost the US manufacturing sector some 175,000 jobs by the middle of 2019. Steel and aluminum tariffs alone resulted in at least 75,000 job losses. That’s troubling for Trump, who needs to secure electoral college votes from rust belt states in the Great Lakes region. In Michigan, home to auto giants General Motors Co. and Ford Motor Co., it’s diminishing his odds considerably. Without Michigan in his column, Trump is a long-shot. In political escalation, for better or worse considering the deep demographic divisions in the state, Trump is picking a fight with Michigan Gov. Gretchen Whitmer, saying she’s not appreciative enough of his presidency after a plot to kidnap her and topple the state government was revealed Thursday. Whitmer pointed the finger at Trump, meanwhile, for refusing to condemn groups that are viewed as domestic terrorists in some circles.

In conflict news, there are growing concerns that fighting between Armenia and Azerbaijan could spread. The conflict has already drawn in major powers Turkey, Russia and members of the European Union. Now, given the broad diaspora community across the region, the conflict may be drawing in foreign fighters keen to defend their ancestral homelands. The escalating conflict has real implications for energy security given the vast network of pipelines running from the oil- and gas-rich Caspian Sea. Further east, and it looks like conflict is having a contagion effect. With public frustration rising in the aftermath of disputed parliamentary elections, embattled Kyrgyz President Sooronbai Jeenbekov on Friday declared a two-week state of emergency in an effort to quell the protests.

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