-The second wave is here
-Lack of stimulus leads to higher US poverty rates
OPEC Secretary General Mohammad Barkindo said Thursday the production group would not let crude oil prices drop too low, but the demand destruction from the pandemic may be beyond his control. In Europe, most major economies are locking down again as new cases continue to spike. In the United States, it’s reasonable to assume some form of stimulus will develop, just not before November elections. The lack of stimulus though seems to be pushing more and more families below the poverty line. Trouble continues, meanwhile, in Central Asia.
Even with expectations of a drain on US commercial crude oil levels, the price of oil was moving lower in early trading Thursday. As of 8 a.m. ET, the price for Brent was down some 3.2% to trade at $41.93 per barrel.
Addressing questions on whether or not OPEC and a handful of other producers would ease back on restraint in January, OPEC’s Barkindo said the group would not let prices slip like they did early this year. The onset of the pandemic and a price war between Saudi Arabia and Russia added up to push US crude oil prices into negative territory early this year. Relief came through renewed coordination in the form of some 9.7 million barrels per day in curtailments. OPEC had plans to ease back from current restraint levels, but that seems ill-advised given the recent downward revision of some 80,000 bpd for 2021 in its latest monthly market report. Any sense of market optimism, London oil broker PVM said in a note emailed to The GERM Report, may be a reflection of volatility rather than a sign that strong demand is around the corner. Speaking at a virtual forum hosted by the Energy Intelligence group, the head of oil trading Vitol said we may have to wait until a vaccine for the novel coronavirus is developed before we see significant demand growth.
In the United States, Treasury Secretary Steven Mnuchin said it’s unlikely that a stimulus package will pass before elections on Nov. 3, though talks would continue. That a stimulus package will emerge is almost certain, but the question is when. The certainty for the future does very little to help support US families in the present that saw household members sidelined from the workforce by the pandemic. Some parts of the US economy, particularly the services sector, might not see a full recovery for years. A study from the University of Chicago and Notre Dame found the number of people slipping below the poverty line has increased by 6 million in the past three months.
“These numbers are very concerning,” Bruce D. Meyer, an economist at the University of Chicago and an author of the study was quoted by The New York Times as saying. “They tell us people are having a lot more trouble paying their bills, paying their rent, putting food on the table.”
That does little to support the notion that demand will improve over the foreseeable future, particularly as the cooler weather in the Northern Hemisphere compounds the threat from the flu.
French President Emmanuel Macron this week enacted a curfew over most parts of Paris, while German officials warned of the continued economic destruction. That could only get worse on the continent. EU Health Commissioner Stella Kyriakides said “time is running out” on stemming the outbreaks after the infection rate in Europe passed that of the United States. From the 10,000-foot view, IMF Managing Director Kristalina Georgieva said she was concerned about the long-term economic “scarring” from the pandemic. Already expecting economic headwinds from its messy divorce with the European Union, the British government was warning of a “difficult winter ahead.”
Meanwhile, public frustration may be boiling over. There are emerging concerns that Election Day in the United States will turn violent. In Egypt, protests have erupted over the heavy-handed tactics of the government and misleading accounts of the death in Cairo of a woman in her 20s. In the Caucasus, there are no signs that fighting between Armenia and Azerbaijan over the long-disputed territory of Nagarno-Karabakh is threatening regional oil pipelines, though a shaky cease-fire agreement shows the risk premium remains. Further east and the government in Kyrgyzstan fell after continued demonstrations against recent parliamentary elections.