The GERM Report

-Markets wither amid U.S. chaos

-Oil prices had rallied on the back of bloating inventories

Crude oil futures moved into deep backwardation on Wednesday after Saudi Arabia resumed its role of swing producer by announcing a 1 million barrel per day cut in crude oil production. The market took additional cues from the U.S. government, which reported a drain on commercial crude oil inventories during the last week of December. Elsewhere, investors put bets in energy and industrials given the prospect of a Blue Wave crashing on the U.S electoral system. But watch out. The situation in Washington D.C. is turning violent as we type these words.

The price for Brent crude oil, the global benchmark, as up 1.9% as of 2 p.m. ET to trade at $54.59 per barrel. All major U.S. stock market indices were in positive territory, after slipping in pre-market trading.

Saudi Arabia on Tuesday showed it still held sway over the dozens of producers coordinating to keep the market in check through extraordinary restraint. Russia and Kazakhstan were early advocates for easing back in February, but eventually backed off after getting concessions to address winter demand. That eased concerns about a flood of oil in the market amid weakened demand, though the rally in crude oil prices is almost certain incentivize shale oil production in the United States.

On Wednesday, the EIA reported total commercial inventories decreased by 8 million barrels during the week ending Jan. 8, though the big drain could be attributed to late-year accounting. In what would normally support a bearish signal, both gasoline and distillate inventory levels increased, suggesting demand remained suppressed. Total products supplied over the last four-week period, a proxy for demand, was down 9.3% over the same four-week period.

Futures slumped in pre-market movement early Wednesday as it emerged that Democrats would take control of the Senate after a runoff election in Georgia. Investors were moving out of the tech-heavy Nasdaq on concerns that Democrats would crack down hard on big tech companies like Apple and Facebook. Markets turned around quickly, though, putting their bets on renewable energy companies given President-elect Joe Biden’s pledge to usher in a greener economy.

By mid-day, however, the situation had turned violent. U.S. President Donald Trump spent much of the morning delivering contentious remarks about American democracy, tacitly urging Vice President Mike Pence to overturn the results of the election. The vice president and members of Congress were later evacuated from federal buildings during what would normally be a formality in certifying the votes in the Electoral College that ensure Joe Biden won the presidency. Images broadcast on social media and on major television networks were astonishing to say the least as pro-Trump supporters broke into the Capitol building.

Markets had largely ignored the escalating situation in Washington D.C., but were moving lower as the afternoon dragged on. This was a remarkably sad day for the United States.