The GERM Report

-Weak earnings reports set the mood for the day.

-OPEC may have no choice but to stay where it is on production.

The price for Brent crude oil is on pace for a 7.7% contraction for October as demand disintegration reemerges alongside the rise in new cases of the novel coronavirus. European countries, and now some U.S. states, are reversing course and shutting down parts of their economies and cases soar. Investors may be looking for any port in the storm at this point, with contagion spilling into the equities market. The pandemic has left deep scars on the global economy. With market jitters exacerbated by what could be a volatile Election Day in the United States, there’s no shortage of negative news out there.

Brent is on pace for a weekly loss of a staggering 10% on the week, way off the chart we use in The GERM Report. Dismal earnings from the supermajors set the tone for the day, with Brent down some 1.3% as of 2:25 p.m. ET.

“The commodity sector has seen a sharp reversal this week from the strong gains recorded during the past couple of months,” Ole Hanson, the head of commodity strategy at Danish firm Saxo Bank, said in a note. “Faced with a renewed surge in Covid-19 cases in Europe and the U.S. as well as next week’s ultimate risk event, the U.S. presidential election, it is perhaps not that surprising to see investors turn more defensive.”

Exxon Mobil on Friday reported its third straight quarterly loss on the year, reporting a net loss of $680 million compared with a $3.17 million profit for third quarter 2019. The company said it was looking to trim its budget for next year and announced plans to cut about 15% of its workforce. For the first time since 1982, the company will not be issuing a dividend on its shares. Chevron surprised on the upside, but tempered any optimism about the days and weeks ahead.

“We’re not trying to sustain short-term production,” Chief Financial Officer Pierre Breber told analysts and investors during a conference call. “We’re in an economy that’s impacted by its pandemic and demand for our products is below normal levels and pre-pandemic levels, and therefore we have oversupplied markets.”

There would be some support on the supply side, though it would largely reflect trend in declining run rates. Refiner Phillips 66 said it’s not yet clear when it will restart parts of its 260,000 barrel per day refinery in Lake Charles, La. The facility was closed in August as Hurricane Laura barreled down on the U.S. Gulf Coast in August. Rig counts, meanwhile, increased yet again in the United States, but activity levels are still far below where they were this time last year.

Further out on the horizon and the demand strains create obvious problems for the OPEC-led effort to balance the market through coordinated production restraint. We noted that some Middle East producers were already fretting about a January relaxation, seeing their pennies pinched by the weak economy. Nobody is surprised, noted London oil broker PVM in a note sent to The GERM Report, that OPEC is starting to signal it will stand still come 2021. Until then, it may get messy.