The GERM Report

-US election chaos adds insult to injury

-IMF sees permanent scars in the Asia-Pacific

Crude oil prices tested support levels in the previous session after US data on petroleum and petroleum products hinted at weakening demand. Further headwinds developing from the dwindling prospects of a US stimulus package. On the demand side, the International Monetary Fund offered a bleak assessment of the Asian economy. And we continue to see tests to US hegemony, with Iran brushing off suggestions it tampered in the US election and France snubbing imports of US-made liquefied natural gas. On the international stage, meanwhile, Lebanon turns to all the king’s horses and all the king’s men to put the pieces back together again.

Crude oil prices lost significant ground in the previous session on signs consumer demand was fading. While US commercial stockpiles of oil showed another draw, the market figured that was skewed by hurricane-related outages. Product demand was a disappointment. There may be some dip-buying at play early in the session, though, with Brent trading up about 0.9% as of 8 a.m. ET to hit $42.10 per barrel.

US commercial crude oil inventories declined for the thirteenth week in a row, though the 1.9-million-barrel build in gasoline stocks pushed traders out of black gold in the previous session. In Cushing, Okla., the delivery point for US crude, stockpiles are the highest they’ve been since May. All told, the indicators point to renewed weakness in the US economy. Part of this is seasonal. Part of it is due to the pandemic. And part of it is due to the lack of stimulus for the US economy. Both sides of the political spectrum continue to put out rhetoric something will emerge, but it’s highly unlikely this close to the election. No matter who wins in the US presidential race, it might not be until January until another relief package is passed for the world’s largest economy. That will no doubt have an impact on holiday spending, and many US families are considering cancelling holiday plans because of the spike in infections of the novel coronavirus. We’ll find out later in the day if the pending holiday season is leading to more jobs, though many of those jobs could be temporary.

For the Asia-Pacific, the International Monetary Fund found the region is in the grips of the “worst recession in living memory.” The forecast for next year of growth of 6.9% was an improvement from June estimates, though the IMF said the combination of this year’s deep recession, the bruise to tourism revenue and lackluster demand means full recovery will be slow to develop. The scars will take long to heal and economic trajectory might not be back to pre-pandemic levels even by the middle of the decade. China remains the lone bright spot in the regional economy, and in fact the world. The second-largest economy behind the United States is a “rare positive figure in a sea of negatives,” Jonathan Ostry, the acting director for the Asia-Pacific, said in a statement.

The political circus in the United States continues, with the president’s personal attorney, former New York Mayor Rudy Giuliani, taking center stage. Giuliani is behind a campaign to paint former US Vice President Joe Biden and his son, Hunter, as corrupt officials pandering in nepotism in the Ukrainian energy sector. The former mayor is suspected in some circles of being under the influence of a Russian misinformation campaign. A new movie from comedian Sacha Baron Cohen, meanwhile, shows Giuliani in something of a compromising situation with an actress posing as a minor. We’ve commented at length that the United States has lost influence under President Trump and the rumors on the former mayor can only be seen as another black eye. Trump can be expected to cry foul if he loses, pointing to anything from ballot tampering to external actors. Adding insult to injury, given this administration’s push for energy dominance on the global stage, is a French decision to scrap a mega-billion-dollar deal for US-made LNG, citing regulatory rollbacks on climate initiatives under Trump.

Another French concern is Lebanon, which is slipping into political and economic decline at a dizzying pace. A summer explosion of ammonium nitrate at the port at Beirut was a catalyst for breaking the already-present fissures in the political class. We’ve seen a revolving door of sorts for ministers in the Lebanese government and, true to form, we’re seeing it again. Saad Hariri, the son of late Prime Minister Rafik Hariri, was tasked with picking up the gauntlet yet again. The more things stay the same in Lebanon, the more they stay the same, but at least there are signs a government will emerge from the ashes. That plays into the geopolitical chessboard in the area, and tangentially to the rich natural gas reserves in the Mediterranean Sea.

For risk premium, the situation in Nigeria is getting worse, threatening the oil-rich southern states. The Nigerian military may move into the southern state of Lagos to stem the violence related to demonstrations against police brutality. Elsewhere on the African continent, we’re seeing signs of election-related trouble in Ivory Coast. Africa’s western coast is rich in oil and territorial disputes already make the situation tense.