The GERM Report

-OPEC has two problems; supply and demand.

-China looks inward for growth.

It’s Election Day in the United States and crude prices are in rally mode. It has little to do with the U.S. contest, however, and more to do with OPEC. The production group has two clear problems; one is demand, the other supply. Demand destruction in the Northern Hemisphere is expected to compound seasonal factors and drive oil prices lower. Libya, meanwhile, is making good on its pledge to top 1 million barrels per day by year-end. That makes it likely that OPEC+ won’t cut back on restraint come January, lending support to commodities in Tuesday trading.

Crude oil prices were largely unchanged in the Asian session, but continued with Monday’s rally once the United States woke up. At 2:11 p.m. ET, Brent crude oil was up 2.64% to hit $40.00 per barrel on the button. We’re still a bit away, however, from the mid-October flirtation with the mid-$40 range.

Commentary from Ole Hanson, the head of commodity strategy at Danish investment firm Saxo Bank, finds the return of the quarantine economy is having obvious impacts on demand, as mobility is constrained due to renewed lockdowns in Europe and in some U.S. states. Libya, where a shaky cease-fire is holding between rival administrations, has production close to 800,000 barrels per day and is on pace for the stated goal of 1.2 million bpd by year’s end. Both factors have caught the attention of Russia, which said it would be on board with keeping production restraint where it is for now.

“These developments have in our opinion sharply reduced the likelihood of OPEC+ going through with the agreed 1.9 million barrels/day production increase from January,” Hanson wrote.

In the U.S. election contest, the only real certainty as of this writing is the degree of uncertainty. Former U.S. Vice President Joe Biden looks like he’ll unseat Donald Trump, but we saw this movie once before, in 2016. Unless either candidate shows an undisputable path to victory, the legal fight is expected to get ugly. We might also see some violence, unfortunately. We’ve commented at length on what’s at stake for the energy sector, so we’ll leave it to the good folks at Platts to add a splash of color to the election narrative.

“The impact of the US elections on commodities remains uncertain, in that a re-election of President Donald Trump would likely mean a continuation of easing regulatory constraints on the oil and natural gas industries, while a Joe Biden election victory would most likely increase regulation and encourage growth in renewables,” commentary emailed to The GERM Report read.

The analysis finds that a Biden presidency would be supportive to economic growth, with the prospects of new stimulus greater under his tenure. But easing policy on Iran and Venezuela could present supply-side pressures.

Elsewhere, we’re looking at recent Chinese policy as something of a flock of wah wahs, to coin the oft-cut closing lines of a popular Joe Walsh song. Pegging a lot of its success on an export-driven economy and, so far during the pandemic, it’s been the only game in town. Now, China may be looking internally for a consumer-driven boost. That’s a game changer that could have an impact on future demand.