The GERM Report

-Transition, vaccine drive oil prices higher.

-Eni declared force majeure over Nigerian crude.

A late Monday certification of votes in Michigan was followed by an announcement that the transition process for US President-elect Joe Biden will proceed with few interruptions. Hopes that a vaccine for COVID-19 added to the positive mood, sending crude oil prices higher and vaulting the Dow over 30,000 for the first time ever. Add to that an expected drop in U.S. crude oil inventories and you have yourself a rally, with talk of $50 per barrel oil showing up in our morning inbox. The sigh of relief in US politics was loud enough on its own to drown out some of the negative news, notably US consumer outlook for the fourth quarter.

Brent crude oil was up 3.7% as of 2:30 p.m. ET to hit $47.75 per barrel. U.S. crude oil prices, meanwhile, cracked though a ceiling in place for much of the latter part of the year, rallying some 4.2%.

The rally was supported in part by a force majuere declaration from Eni over Nigerian crude after explosions on pipelines in the country. Eni estimates the declaration impacts only about 30,000 bpd, however.

Meanwhile, estimates emailed to The GERM Report from S&P Global Platts finds commercial crude oil inventories in the United States are expected to show a 1.3 million barrel draw for last week. That comes amid an uptick in refinery demand and an increase in exports of US crude oil.

“The counter-seasonal draw would narrow the surplus to the five-year average of US Energy Information Administration data to 6%, the smallest overhang since the week ended April 3,” the report read.

In the broader markets, the mood was lifted by revelations that Trump’s effort to overturn the vote in the courts is over. The agency tasked with facilitating the transition acknowledged Biden’s victory late Monday, paving the way for his team to start taking shape. On Tuesday, Biden and Vice President-elect Kamala Harris introduced their early Cabinet picks, who overwhelmingly stressed a return to multilateralism. On the pages of Foreign Affairs, former Defense Secretary James Mattis and others opined that Biden should make a point to do away with the “America First” strategy that saw Trump shredding much of the liberal world order the United States helped create.

The prospects of a return to the non-zero sum game of international relations should be comforting, though we would be remiss to ignore the words of neo-liberal thinker Kenneth Waltz who said maneuvering through the overlapping layers of multilateral issues often puts the many players in the worst of all possible worlds.

But all that is next year. Right now, things aren’t so rosy. Consumer confidence in the United States moved lower for November.

“Heading into 2021, consumers do not foresee the economy, nor the labor market, gaining strength,” Lynn Franco, the senior director of economic indicators at the board said in a statement. “In addition, the resurgence of COVID-19 is further increasing uncertainty and exacerbating concerns about the outlook.”

That should provide a clue about holiday spending plans in a US economy that saw a financial safety net disintegrate months ago. Holiday travel plans, meanwhile, will be muted, likely leading to a build in gasoline inventories when we look at data again last week.

The Dow at 30,000 and Brent flirting with $50 per barrel do more psychologically than anything. Recovery won’t really begin until a vaccine is ready, though the backwardation structure in place for commodities shows the market is indeed living in a utopian future.