The GERM Report

-Geopolitical risk is quietly tapping on our shoulder.

-Mnuchin throws a wrench in the economic gears.

Crude oil prices were supported in Friday trading by vaccine hopes and an underlying risk premium. Drugmakers Pfizer and BioNTech filed for fast-track approval of their vaccine for COVID-19 on Friday, giving the futures market something of a sigh of relief. Closer to the hear and now, however, the U.S. Treasury Department may have thrown a pretty big wrench in the gears of economic recovery. Elsewhere, in something of a we-told-you-so fashion, terrorists struck a gas line in Egypt. And in similar fashion, Israel is portraying Lebanon as the bad guy on contentious maritime border negotiations.

Crude oil prices were volatile in Friday trading, moving between gains and losses for most of the day. Trade patterns for US crude again showed a break out was possible. A dip in rig counts wasn’t enough to spoil the mood, though. Brent was up 1.79% as of 2:35 p.m. ET to trade at $44.99 per barrel.

That could be indicative of an undersupplied market, but let’s not get too crazy. Should OPEC drink the kool-aid, it would flood the market with an extra 2 million bpd in January. US rig counts moved lower on Friday, but not in the Permian. Policies proposed by President-elect Joe Biden could bring US production lower, but with steady rig counts and a decent inventory of DUCs to go through, there may be more supply-side pressures than not. And, lest we forget, Libya is booming.

Apart for the never-ending barrage of vaccine news, it looks like the Trump administration is setting up roadblocks for Biden. We told you earlier this week that sanctions on Iran may be complicated enough to thwart any swift return to the multi-lateral nuclear agreement that saw Tehran back away from some of its nuclear ambitions. For the economy, outgoing Treasury Secretary Steven Mnuchin on Friday balked on extending lending and asked the Federal Reserve to give back some of the money supporting the various sectors. With stimulus yesterday’s news, that would certainly limit what Biden can do to prop up the faltering U.S. economy. Revenge politics do little to support an economy or the people. We’ll start getting clues of what that revenge looks like next week when the holiday shopping season begins in earnest.

State television in Saudi Arabia, meanwhile, reported Saudi-led forces shot down a drone said to be coming from the Iranian-backed Houthi rebels in Yemen. Similar instances in the past led to major spikes in the price of oil. Elsewhere, and Islamic State militants claimed responsibility for explosions on a natural gas pipeline running from Egypt to Israel. We had warned earlier this year that the Arab Pivot, the Trump-coordinated effort to bring Arab states into courtship with Israel, may look good on paper, but would likely spark an offensive response from the likes of Hamas, Hezbollah and the Islamic State. Pipelines make good politics, but they make for attractive targets for militant groups that can have long-lasting impacts on regional economies.

“The largely Sunni tilt toward a country that’s arguably one of the more contentious ones in the Arab and Persian world is certainly a breakthrough, though we contend the issue does less for peace than support it,” we wrote in September. “Arab favors from the US Defense Department could add another layer of tension. The Palestinian cause, meanwhile, looks dead on arrival.”

And as we noted on Thursday, negotiations between Israel and Lebanon over maritime borders is going as expected. Israel accused its Lebanese counterparts of waffling over its position over what it claims is theirs. At issue, at least in part, are the vast natural gas reserves in the Lebanon. In brief, to the victor go the spoils.