Vaccines giveth and the virus taketh away

Risk level: Orange

RED: Severe (+/- 4%) ORANGE: High (+/- 3%) YELLOW: Elevated (+/- 2%) BLUE: Guarded (+/- 1%)


-Demand destruction persists

-Beware the ghost of Trump

The rollout of vaccines meant to inoculate the world against COVID-19 drove global sentiment last week. Both the Pfizer/BioNtech and Moderna vaccines have seen swift approval, giving investors cause to move into riskier assets such as oil. That optimism largely ignores the rise in U.S. unemployment and the pending no-deal Brexit. World-wide lockdowns, meanwhile, should crimp consumer spending, one of the main drivers of the global economy. There’s about a month left to go in the Trump presidency and the administration is still hell bent on serving departing blows to national and international adversaries. If politics are like the flow of water in a stream, we expect the Biden administration will be haunted by the ghost of Trump for the foreseeable future.

U.S.-centered news and demand growth in Asia helped push the price of crude oil higher on the week. Brent may be looking for a correction, however, as calendar spreads flirt with contango. U.S. rig counts, meanwhile, increased yet again, suggesting supply-side strains are on the horizon. But it was largely vaccine tailwinds and prospects of a new round of stimulus in the United States that drove the rally last week. Brent finished up some 4.6% on the week to end trading Friday at $52.26 per barrel.

Biden on the campaign trail pledged to ban hydraulic fracturing on federal lands, sending jitters through a U.S. energy sector that for years enjoyed favors from President Trump. The American Petroleum Institute estimated that Biden’s drilling ban could lead to 120,000 job losses by 2022. S&P Global Platts, meanwhile, said the proposal would trim about 1.1 million barrels per day from U.S. oil production by the middle of the decade. We’ve seen the Trump administration play for energy dominance during much of his tenure. Near the beginning of the year, that dominance was put on display when the president played divorce moderator between Russia and Saudi Arabia, ending a price war that came at clearly the wrong time. The goal of energy dominance seems under threat from a Biden drilling ban, but given the political climate in the United States, we see significant partisan obstacles for the next president.

It is unlikely that a President Biden will be able to restore Pax Americana. His age suggests he’s a one-term president and it’s unclear how well his vice president, Kamala Harris, would resonate as a potential successor. That sets up for a potential return of a GOP that had largely unchecked power during the Trump presidency. It’s widely expected that Secretary of State Mike Pompeo, and potentially Trump himself, will run for president in 2024, continuing the right-wing legacy. Meanwhile, Trump is determined to settle any remaining scores. Domestically, Michigan Gov. Gretchen Whitmer, a frequent target of the president’s ire, suggested the Trump administration was deliberately thwarting the deliveries of vaccines to her state.

“We have Michigan hospitals and nursing homes ready to administer this vaccine. And the bottleneck appears to be the White House,” she said Friday. “And I can’t get an answer why.”

On Friday, the Chinese government lashed out at the Trump administration for pitching another round of tough sanctions. Commerce Secretary Wilbur Ross told Fox News on Friday the administration was going to sanction another 80 Chinese companies on the grounds of national security. That drew a sharp rebuke from Chinese Foreign Minister Wang Yi, who described the latest trade salvo as an “emotional lashing out” that smacked of “McCarthyism.” These, and similar moves, are going to make any effort at détente from the Biden administration difficult given the trust deficit they created.

At home, the situation is no less toxic. Last week, U.S. Sen. Gary Peters, D-Mich., engaged in a heated exchange with Sen. Ron Johnson, R-Wis., during a hearing on election irregularities. Johnson insisted throughout the hearing there was no harm in investigating potential fraud in the Nov. 3 contest even as the courts, along with U.S. Attorney General Bill Barr, an ardent Trump supporter, said no such fraud existed. During a recent interview about stimulus debates under way on Capitol Hill, Sen. Josh Hawley, R-Mo., said the president has a right to dispute the election results until Jan. 6, when lawmakers certify the vote. That point came after the Electoral College confirmed Biden had the votes to become the next president. And if that’s not enough of a hint of how the future political landscape will look, Trump’s former national security adviser Michael Flynn, pardoned after pleading guilty to a felony charge of lying to the FBI on Russian issues, suggested the military could help overturn the results of the Nov. 3 election.

“He could order, within the swing states if he wanted to, he could take military capabilities and basically rerun an election each in those states,” Flynn said.

That’s an open call for a military coup in a country founded on the principles of democracy. And apparently the president himself was in on those discussions.

That’s the political climate that Biden will face when he takes office in January. His presumptive energy secretary, former Michigan Gov. Jennifer Granholm, has a reputation for controlling the room, though the toxicity of the U.S. political climate did not exist when she last held public office some 10 years ago. Granholm in her tenure was successful at steering climate initiatives through the state legislature, but she’ll have to contend with supporters of President Trump who know how to break the rules and drive a narrative that’s destructive to bipartisanism. Trump may be on his way out of office, but the mold he broke on U.S.-style democracy will be difficult to put back together in one term.

It will be a holiday-shortened trade week, though we widely expect crude oil prices to shrug off the latest U.S. stimulus package given new travel restrictions in Europe. A no-deal Brexit, meanwhile, could spoil the mood. Elsewhere, we expect to see a build in petroleum product inventories this week given the recent snow storm in Northeast U.S. states. Given the trend in commodities on Monday, we’re expecting a bounce of at least plus or minus 3%, an Orange alert, for the week ending Dec. 25.


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