Crude prices are plunging early in Asian trading with Brent down 12% following a delay to the much-hoped-for OPEC+ meeting (due tomorrow, Monday, but now pushed off until Thursday).
As Ransquawk details,an OPEC+ call that was scheduled for Monday has been delayed until Thursday, amid an intensifying dispute between Russia and Saudi Arabia over who is to blame for falling crude prices. Participants are to discuss the demand hit to crude from COVID-19. Analysts do not seem to be convinced that the group will make sufficient progress; the Saudis and Russia have called for other global producers – namely US, Canada and Mexico – to share the burden of cuts, while Norway has also said it would consider cutting production in any coordinated global effort.
LEVEL OF CUTS: Ahead of the now notorious March OPEC meeting, there was a recommendation to cut an additional 1.5mln BPD from April 2020 through the end of 2020, with a review in June. The deal was conditional on support from OPEC+, and OPEC said any deal could only be applied on a pro-rata basis, and proposed core members cut by 1mln BPD, and non-OPEC by 500k. Ahead of Thursday’s meeting, a figure of 10mln BPD cut to output has been floated (around 10% of global supply), although following a call with Saudi Arabia, US President Trump last week indicated that it could be as much as 15mln BPD. A source has suggested that the 10mln should be slashed from current levels of output. Either way, Goldman Sachs thinks that the demand hit might actually be more like 26mln BPD, and a cut of 10mln BPD may prove to be insufficient.
TEXAS: The Trump administration has previously signalled it would not impose mandatory curbs on companies’ production, given the antitrust legislation, although Stratfor’s analysts note that Texas, where field production was running at a pace of 5.37mln BPD at the end of 2019, does have the legal framework to be able do so at a state level. One of the three Texas Railroad Commission members, Ryan Sitton, has indicated a willingness to agree production cuts to support oil prices and prevent producers in the state going bust. Texas regulators are to meet on 14th April to discuss production curbs in the state, and may vote on any resolution a week later, Reuters reported. Sitton, however, is a lame duck on the Commission, having lost in the March primary to a challenger, and his term concludes in December; the state’s two other regulators, Wayne Christian and Christi Craddick, have not publicly endorsed cuts. Meanwhile, US President Trump on the weekend said he was considering slapping tariffs on oil imports, or even take other such measures, in order to protect the US energy sector from falling oil prices; Canada is reportedly also mulling such steps. This follows calls by leading lawmakers in recent weeks for such action. For reference, the US imports of petroleum were around 9.1mln BPD in 2019, of which Saudi and Russian imports were just over 500k each.
WHAT TO WATCH: Talk of further production cuts was supportive for crude prices last week, and were participants not able to strike a deal, oil could again find itself under pressure. In terms the signposts to watch, Stratfor suggests monitoring Saudi willingness to go back to letting Russia cut a much smaller amount, or an openness to a Texas-only US commitment. “In any case, a deal keeping Brent above USD 30/bbl does not seem the most likely outcome,” it said. Additionally, others have noted that Saudi Arabia delayed publishing its official selling prices for May until 10th April (a day after the call), an unprecedented measure to allow stakeholders more time to reach a deal ahead of Thursday’s call, a source said; the data was due to be published on Sunday, and it will this week be useful in corroborating how the meeting really went.
“The sense of urgency is building,” said Jason Bordoff, a former Obama administration energy adviser and the founding director of Columbia University’s Center on Global Energy Policy.
“Nobody wants to be seen to blink first in this game of oil-price-war chicken…but I don’t think anyone — including the Saudis and the Russians — is happy with how the oil market looks right now.”
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Interestingly, the collapse in crude did not do anything to stall the equity algos which purportedly saw hope in some slowing accelerations in body counts and decided it was time to buy the dip…
Shawn Reynolds, portfolio manager for investment firm VanEck’s natural-resources equity strategies, said he isn’t ready to boost his holdings of energy assets. He has slashed his investments in the sector to the smallest allocation he has ever had.
“Just to stop the carnage, you want to see some rationality brought back to the market,” he said.
“Everybody is just getting killed.”
Mr. Reynolds said he wants to see clarity on the pandemic and more details on supply curbs before he even considers increasing it again.
a chance occurrence or superior force that renders a contract unenforceable and frees all parties from their obligations under it.
We are frequently told that there exists some manner of “Social Contract” to which we are implicitly bound by virtue of being alive. This implied Social Contract confers legitimacy upon the institutions that order our world, the national governments, the central banks, the miltary and police. And by extension certain communication outlets and media are endowed with a status of official curators over the narratives around institutional power.
Under the Force Majeure Scenario, the first of four possible Coronavirus aftermaths posited in “Welcome to the Jackpot”, the overwhelming or superior force is not the pandemic itself, but rather the collapse of the debt supercycle, the monetary system that derives from it, and the structure of nation states that are burgeoned by it.
The last time we were here, when a systemic crisis has shaken the foundation of the social order, the policy response was favourable to one party of the social contract at the expense of the others.
The GFC, which I now call GFC 1.0 or GFC ‘08, saw the financialized class, those closest to the monetary spigots of the Central Banks enjoy accelerating prosperity as their asset values rose, whilst the rest of the population endured stagnation and a steadily increasing cost-of-living (which mainstream commentators refused to acknowledge as inflation).
The policy response from the last crisis has led us directly, in a straight line to this one. The only surprise being the exact nature of the catalyst which would pop the Everything Bubble, and perhaps the ferocity with which the air began to let out once it did.
The signs were certainly there that we were nearing some kind of archetypical “shoeshine boy”moment or phenomenon. Complacency in passive investing, extreme overabundance in the unicorn population, the fact that there exists (existed) an entire industry around arbitraging long term leases with short term rentals via AirBnB, there was a sense of Roaring 20’s around it all and all those vile contrarians were wondering “just how long can this go on?”
Stacking additional layers of arbitrage, using leverage, atop a unicorn, could only occur at or near the peak of an Everything Bubble
Under Force Majeure the public begins to understand that the people who populate institutions are just that, people. Despite specialized training perhaps, they are not endowed with any superhuman intellect or wisdom. Success within the matrix of the institutional elite comes from proxemics and adroitly navigating the system itself, not much more.
“An era can be considered over when its basic illusions have been exhausted”
– Arthur Miller
An era like this comes to an end when the public realizes that their betters aren’t intellectually superior but rather institutionally privileged. Now facing an existential crisis of their own making, they are completely out of touch with the public mind and out of their depth to deal with it.
Then The System Finally Comes Unglued. Now what?
The central banks and national governments have fired their bazookas in unison yet despite a typical relief rally in the form of a standard issue dead cat bounce, reality continues to insist on asserting itself. On a recent Jelly Donuts podcast, Grant Williams talks about forthcoming GDP numbers coming off 30% “truly apocalyptic”.
Yet, the incumbent institutional custodians will continue to deny reality and to discredit themselves, what will it look like then the populace comes to realize that the old social order, and the institutions that curate it are being deprecated?
Breaking: A new bull market has begun. The Dow has rallied more than 20% since hitting a low three days ago, ending the shortest bear market ever. https://t.co/06YS0XqWGP
Ontario Premier Doug Ford recently advised citizens who couldn’t pay their looming rent bills at the first of the month to simply “not pay”. He later tried walking that back, but when this sentiment gets writ large, with governments printing money and sending out cheques, what happens when people and businesses simply decide not to pay their taxes either?
Can political leaders say, with a straight face, that citizens should stiff their landlords or mortgage lenders but not the State?
And if the State can simply print up money and send out cheques, why do we need taxes anyway? Have we arrived at full MMT?
All of the central bank and fiscal stimulus portends a secular shift from deflation to inflation and I don’t think very many people understand what that means.
It means a whole lot of broken clocks are gonna be right for once, but at a time it counts the most.
Twitter financial commentator and humorist @RudyHavenstein nails it…
Now, every company that levered up on debt to buy back their own shares over the last 10 years wants a bailout. Grant Williams points out in Things That Make You Go Hymm that the airline industry spent 47B on buybacks since 2010, they want a 50B bailout.
Source: Grant Williams, Things That Make You Go Hymm March 22/2020
What the chart, right, doesn’t show is the total dollar amount spent by the airlines on buying back their own shares between 2010 and 2019.
That number is $47.3 billion (of which American Airlines – whose negative cumulative free cash flow between those dates was $7.9 bln – contributed $13 bln).
And what will public citizens get? Those whose businesses have been ordered to close, whose jobs have already been lost? They’ll get a check for $1,200, or a tax deferral until August. Bfd.
MJ: when I look at Pathfinding [Our Destiny] like part seven where where we’re talking about what the way forward looks like, that it’s outside of the control of the of the establishment, that it’s outside of the system I get this sense that for society to flourish and adapt around this and evolve. I guess that’s the key word, we’re going do this around the institutionalized hierarchies.
They’re not going to get religion one day, we’re not going to elect the right candidate, we’re not going to have the right party gain power that’s suddenly going to say “I read this great book by Charles Hugh Smith and this is how we’re going to do it”.
It’s going to be something like institutionalized hierarchies will just lose more and more relevance as these new social and business and financial configurations start gaining more and more relevance.
CHS: That’s an excellent point and I think if anything I didn’t emphasize that enough. That really what we’re talking about is kind of like hacking the system in in the old time sense that a hack was a workaround. It wasn’t like you were breaking into the system to steal something, you’d created a workaround for a kludgy system that just didn’t work anymore.
And so I think you’re absolutely right, it’s going to be working around us and and Bitcoin is one example of how workarounds are manifesting and of course the status quo is going try to suppress those and/or co-opt them but what we’re really talking about is when systems fail at a systemic level you can’t reform them. You’re not going to make a policy tweak that’s going to fix higher education or the health care system. It just isn’t going work.
People are going to start working around that and they’re going be starting to pay cash for for medical care from pop up providers or remote physicians. Or there’s lots of different solutions to that in education. What I see the model that’s going to emerge whether people like it or not and is that students are going to start taking control of their own education and they’re going start organizing their own education.
They don’t need this bloated structure that charges them $70,000 a year and so that’s where technology, the internet and networking has really enabled a whole suite of solutions that basically bypass all the institutions that now hold the wealth and power, that have all this as you say institutionalized lethargy as as their their model.
It’s actually quite an exciting time but for those who are dependent on the system within these institutions it’s a very disturbing time
Under Force Majeure as the institutions become understood to be out of touch with both the causes and remedies to the immediate crisis, they begin to signal their own hypocrisy and irrelevancy more intensely.
It will not be long before citizens will face the dilemma of continuing to observe the edicts of their governments, whose policies inexorably stripped them of their ability to weather any kind of economic speed bump. They will come to realize that despite what the government decrees, especially if that means keeping their businesses closed or their jobs on hold for much longer, they may be better off working around that.
That’s when myriad alternative economies and ecosystems will explode, black markets, grey markets, Local Exchange Currencies, private blockchains, invisible agoras.
As governments at all levels teeter on insolvency and their ability to control their own populace everywhere or to be in a position to guarantee security and order, I could envision neighbourhood watch groups morphing into localized militias. I would anticipate an explosion in private security and ex-military contractors.
Don’t be surprised to see Facebook resurrect their Libra, either under that monicker or some rebranded version as the large corporations, the ones that have revenues larger than most national GDPs begin to reassert some of their plans which may have been impeded earlier.
However it plays out, the key points to bear in mind are that:
It would be a mistake to think of the next 20 years as a linear, albeit accelerated version of the previous 20 years (a la Chris Martenson)
We are about to undergo a change in secularity from deflation to inflation (a la Grant Williams, Peter Schiff and many others)
The incumbent institutions of the fiat currency era are about to be swept away, akin to the way the royal houses of Europe were after World War 1 (the last major “Force Majeure” transition period that comes to mind for me).
When Will The Coronavirus Lockdowns Be Lifted? Here Are One Bank’s Estimates
With most of the developed world on lockdown, and markets and economies paralyzed until there is a material decline in new coronavirus cases, i.e., until we slide “over the hump” of the coronavirus curve, the biggest question – and variable – in assessing the economic damage unleashed by the covid-19 virus is the length of the lockdowns now in force, with Deutsche Bank’s Luke Templeman pointing out that “politicians and health officials have discussed dates ranging anywhere from weeks to over a year.”
In an attempt to answer this most important for capital markets question, namely when will the civic and economic restrictions begin to be lifted in various key countries, Deutsche Bank provides some estimates largely based on the experience of the lockdown and reopening in China’s Hubei province.
Using the “Chinese” experience as indicative of what other countries can achieve, recent studies have confirmed that after implementing various suppression measures, several large countries “appear to be converging onto the decline in the daily growth rate of deaths” seen in China. An Imperial College study in particular pointed out that the overall number of deaths in other countries could be between two and eight times the number of deaths as in China.
As DB notes, one way to look at how other countries are converging on the experience in Hubei province, China is shown in the following chart. As the German bank explains, it uses “a three-day comparison in order to filter out the noise from sudden jumps and drops when figures were relatively small. We also start each time series at the point at which restrictions were introduced to attempt a closer comparison. We then show all the countries individually against the Hubei experience.”
With that in mind, here’s China:
… and the rest of the countries that have reported the most fatalities to date:
Looking at the charts above, at first glance it appears that the growth rate in the number of fatalities in Hubei province is falling faster than that in other countries. This is true, however, according to DB it does not invalidate the comparison of Hubei with other countries. That is because Hubei implemented restrictions earlier in the process of infection than did some other countries with the US being the laggard. There is also that fact that, whether anyone wants to admit it or not, China’s data has been chronically fabricated and the Wuhan baseline is at best a stylized interpolation of what Beijing wants the world to see even as it continues “one of the worst coverups in human history.”
That said, one must also add to this is the fact that the six other countries examined here have a greater proportion of people in the population that classify as high risk (primarily the elderly). As such, it is not unexpected that the fatality growth curves of these six countries initially lagged that of Hubei.
Despite all these complicating circumstances, a comparison with the Hubei experience is still worth examination. While it is early days, most of the charts indicate each country’s fatality trajectory are now converging (in different stages) with that of Hubei.
There are certainly outliers. For instance, Germany still has a relatively low number of deaths which has made the calculations swing considerably. Meanwhile, the US still shows a fatality growth rate that is not on an obviously downwards trajectory. Still, it must be noted that there can be a 14-day lag between restrictions and outcomes, and President Trump only urged social distancing on 16 March (while our time series starts at 12 March when New York implemented restrictions). Coupled with this, different states in the US have implemented restrictions at different times. Despite this, the Imperial study mentioned earlier specifically indicated that the US began to show convergence with China last week now that many states have implemented lockdowns.
In summary, extrapolating the Hubei experience of lockdown and the beginning of lifting restrictions gives us an indication of when other economies can be reopened even if the timing is unlikely to exactly match.
When will restrictions be lifted?
So with a whole host of caveats, the following chart from DB shows a ‘football field’ representation of the range of possible timelines for the restart of activity in several countries. It includes the current period of lockdowns and the projected time line based on extrapolating the Chinese response. It is likely these countries will begin to loosen restrictions within the range based on the Hubei experience (light blue bar).
To be sure, the decision to relax restrictions depends very heavily on how the epidemic curve in each country progresses. This progression reflects decisions made up to 14 days earlier given the likely incubation period of the virus. In Hubei, the three-day growth rate in new cases decreased from over 200 per cent to 63 per cent in the 14 days after restrictions were put in place. Ultimately, it was 63 days after the restrictions were put in place until they were lifted.
The following table summarizes the potential dates that restrictions on civic and economic activity could end in various key countries.
Here one more caveat: as a reminder, the focus of impact in China was different from that of other countries. China managed to implement restrictions on Hubei that kept the majority of the impact inside the province by effectively streamrolling over the civic liberties of millions of people, something most democratic countries are unable to do with the stroke of a pen the same way Beijing did. Additionally, many other countries have seen the virus enter their borders via different channels – some of which have yet to be confirmed – which can and will change the timeline for the breadth of the spread. Finally, political pressure from different groups in western countries may result in pressure to reopen earlier than the Hubei timeline.
That said, as JPMorgan observed on Friday, with every passing day the list of countries in the “late accumulation” phase are getting closer to the curve apex after, at least in theory, follows a recovery.
That said, if governments rush to reopen economies, if new clusters re-emerge, or if the virus mutates rendering any existing antibodies within the population irrelevant, the whole process begins from square one.
Unfortunately for Europe which was already on the verge of recession well before the Coronavirus breakout, waiting patiently is a luxury the continent can not afford, and as the FT reports today, “governments across Europe have begun preparations to ease the lockdowns imposed across much of the continent to contain the coronavirus pandemic, even if restrictions that have paralyzed the economy are expected to remain in force for several more weeks.”
In short, Europe is preparing to become China, which after an initial period of aggressive quarantines, forced the entire nation back into the office even though new cases continue to flare up and a second cluster now appears to have emerged.
France, Spain, Belgium and Finland are among many countries that have set up expert committees to examine a gradual easing of stay-at-home orders for some businesses and schools while avoiding a second wave of infections that could overwhelm health services.
Pedro Sánchez, the Spanish prime minister, on Saturday extended the shutdown of his country for another two weeks until April 26 but he said a ban imposed last month on all non-essential work including manufacturing and construction would be lifted after Easter.
“When we have the [infection] curve under control, we will shift towards a new normality and towards the reconstruction of our economy,” Mr Sánchez added. “A specific team of epidemiologists has been working for two weeks now on a plan to restart economic and social activity.”
Angelo Borrelli, head of Italy’s Civil Protection Agency which is in charge of co-ordinating the national response to the outbreak, suggested a “phase two” of the country’s lockdown could begin next month: “I don’t want to give dates, but between now and May 16 we may have further positive data that suggests we can resume activities and then start phase two,” he said.
Édouard Philippe, the French premier, said last week that the process of “deconfinement” had no precedent and would be “fearsomely complex”, adding: “We are probably not heading for a deconfinement that would be absolute everywhere for everyone.”
Denmark, which was one of the first countries in Europe to shut down activity and close its borders, last week became the first to put a timetable on the loosening of restrictions: “If we Danes for the next two weeks — beyond Easter — continue to stand together, at a distance, and if the numbers remain stable and reasonable, then the government will begin a gradual, quiet and controlled opening of our society again,” Prime Minister Mette Frederiksen said on March 30.
Germany, where the daily rate of confirmed coronavirus cases and deaths has risen in recent days, has also begun preparing what one official called a “phase-out” that would be “acceptable in terms of health policy”. “But we’ve been careful about what we say in public,” he added.
“The important message now is: we are not in a phase of the pandemic where we can tell people the measures can now be relaxed,” Steffen Seibert, spokesman for German chancellor Angela Merkel, said on Friday. “Of course you can prepare for that mentally, but for the moment it’s this [stay-at-home] message that matters.”
Few other governments are willing to put a timescale on the loosening of restrictions not least because, according to most experts, it will require a massive increase in testing capacity. Many also worry about undermining the stay-at-home message with the onset of the Easter holidays and warmer weather and with populations already chafing at weeks of confinement and the loss of earnings.
Meanwhile, experts warn it is a big mistake for governments not to engage the public in a debate about loosening restrictions: “Although it is clear we cannot talk about when the opening up will take place, we can talk about how,” said Christiane Woopen, professor at the University of Cologne’s Center for Ethics, Rights, Economics, and Social Sciences of Health and a scientific adviser to the government of North Rhine-Westphalia, Germany’s most populous region.
“The public deserve it. They are taking a lot of hardship. They have to trust what political leaders are doing in the next months.
And then there is the worst case scenario: prof Woopen is one of a dozen academics — epidemiologists, physicians, lawyers and economists — who published a report last Friday for the Munich-based Ifo economics institute. The report is an attempt to frame what Prof Woopen calls an “opening strategy, not an exit strategy”, since there is unlikely to be any return to normality before a reliable vaccine against Covid-19 becomes widely available, which appears to be at least a year away.
Finally, even if Deutsche Bank is right and the lockdowns are lifted some time in late May/early June, any loosening of restrictions would have to be accompanied by a ramping up of testing, said Martin Lohse, professor of pharmacology at the University of Würzburg, and another of the Ifo report’s authors.
Even Germany’s extensive testing – it was conducting 50,000 a day last week – is insufficient given its population of 80m, he said. Antibody testing would also be indispensable even if none of the tests being trialled around the world was so far deemed accurate enough. And governments needed to boost production of protective equipment as the wearing of face masks becomes more widespread. France for example is now considering making face masks mandatory in public.
More rigorous contact tracing and tracking via mobile phone apps, would also be essential, Prof Lohse added.
In short, a reopening of the economy would likely entail the introduction of a smartphone based “bio-passport”, where any person who wishes to “reenter society” will have to not only undergo some form of daily testing to confirm they are virus free, but also effectively hand over most if not all privacy to the government. Needless to say, the long-term sociological consequences of such a collectivization of private information will be unlike anything seen in recent history.
Last month, Dr. Fauci insisted at a White House task force press briefing that there was no evidence that pets were vulnerable to the novel coronavirus. Then scientists in Belgium and Hong Kong confirmed that they had found pet cats owned by people infected with the virus that had somehow caught it, as evidence was detected in their urine. At least pet dog has also been infected.
As CNN so aptly points out, the “weak positives” produced in tests of these animals haven’t offered any reason for scientists to suspect that these animals could infect humans – only that these pets could be infected by humans, as humans were once, in turn, infected by animals.
No article that we’ve seen in the mainstream US press has offered a detailed explanation for the scientific community’s reasoning in thinking that these tests suggest that pets can’t infect humans. But while CNN and others have reveled in mocking alarmists who believed in this Internet ‘conspiracy theory’, they neglected to explain that there are two critical reasons for this: the first being that dogs and cats infected in past coronavirus outbreaks (namely, the SARS outbreak in 2002-2003) have shown that the strains they typically pick up don’t cause respiratory problems. Have we confirmed the same is true for the novel coronavirus? No.
The second is that they haven’t found enough examples, and investigators tracing cases haven’t found a case yet where it’s obvious that a pet infected a human.
Still, the World Organization For Animal Health warns that pets who test positive should be quarantined, and any humans who interact with them should wash and sanitize.
But we digress.
We bring up all of this because a few hours ago, the management at the Bronx Zoo learned that Nadia, a 4-year-old Malayan tiger, has tested positive for the coronavirus, according to statements from the U.S. Department of Agriculture and the Wildlife Conservation Society, which manages the New York City zoo.
The tiger is believed to have contracted the virus from an asymptomatic zookeeper. The Bronx Zoo closed to the public in mid-March, and the tiger that tested positive began showing symptoms on March 27.
Right now, millions of New Yorkers are probably wondering how this tiger managed to get a test before their friend/brother/sister/mother/father/grandfather/aunt/etc.
The current optimism of analysts and the media that an end to the ongoing OPEC+ oil price spat is near is entirely unjustified.
The ongoing oil market volatility, the battle between leading producers for market share, the logistical impossibility of enforcing U.S. production cuts, and the continued demand destruction caused by COVID-19 are not issues that can be solved by an OPEC meeting.
Immediately after Trump’s latest OPEC twitter offensive, Saudi Arabia and Russia came out with critical statements about the impact and influence of the US president on the matter. While Putin and Mohammed bin Salman are reluctant to bash Trump, the real power when it comes to the oil market does not lie with the U.S. President.
The tweet by Trump claiming that MBS and Putin would agree to a 10+ million bpd production cut shows not only his overestimation of his own power over the two countries, but also shows a lack of knowledge about the underlying market fundamentals and the current demand destruction worldwide. As former US president George W. Bush stated during his election campaign, which did not end well as we know, “it’s the economy stupid” that matters in the end.
Trump’s tweets and general approach to this matter suggests he and his administration are out of touch with reality.
Even if a Saudi-Russian combination would cut 10 million bpd, the oil price reaction would be minimal and very short-lived. At present, leading oil market experts such as Vitol, Trafigura and Goldman Sachs are warning of a total demand destruction of 20 million bpd or more. When looking at the cuts in global refinery runs, we have already hit levels of -17 million bpd or more. Downstream companies are cutting back on all production as demand from industry and consumers worldwide collapses. Lockdowns in more than half the world are having a major impact, hurting demand for oil, gas and other kinds of energy. Cutting 10+ million bpd of production is not a real solution and it could even cause markets to react negatively.
When production cuts fail to send oil prices up, the fear in the market could hit historical highs, causing oil prices to fall to levels below $10 per barrel in the coming weeks.
The upcoming “OPEC+ and Friends” meeting is going to be a very tricky one.
There is the very real possibility of the meeting failing as the targets that have been set are totally unclear. Saudi Arabia, probably supported by Abu Dhabi, called an emergency meeting, not only of OPEC+ members but of all oil-producing nations. That means that, at least according to Western media, the US is invited and will likely attend. In inviting the U.S., it seems that Saudi Arabia has called Trump’s bluff because by attending the meeting Washington will be implicitly stating that a possible production cut agreement would include the US. When looking at the US upstream oil and gas sector there is one thing you can state without any analysis….Washington and US oil and gas operators are not on the same page.
Suggestions of Washington being able to control or even force US oil to cut production, even via legislation, are ludicrous and would end in a mammoth legal battle. Even if only Texas representatives attend, oil companies will be unlikely to comply, it is simply not in the US oil and gas DNA to work together on an international level. Free market economics is a cornerstone of U.S. society and business.
The second major threat at the Monday meeting is that Saudi Arabia not appear to be at all convinced that it needs to change its current tactics. Its targeted goals of regaining market share, forcing Russia to come to the table and bringing non-OPEC producers such as U.S. shale to their knees are working well. Several Saudi officials have stated that they are willing to discuss a new agreement but only under the conditions that potential production cuts will be on the shoulders of all, not only Saudi Arabia, Russia, and UAE. In this light – Trump’s demand for a more than 10 million bpd cut from Russia and Saudi Arabia is unrealistic, to say the least.
Russia’s position has, until now, remained unclear. While Putin is still acting as though he has nothing to worry about, Russian oligarchs and the Russian leader are happy to debate any options that are on the table. For Russia, the current position taken by Trump is being seen as an opportunity to get some gifts from the U.S. very soon. Russia might consider cooperation with the U.S. if Washington agrees to bring an end to Russian sanctions. But that is not as important to Moscow as a strong relationship with Riyadh and OPEC going forward. Future opportunities with Saudi Arabia are more attractive to Putin than a positive relationship with a President that may not be re-elected this year.
While all eyes will be on Washington, Riyadh, and Moscow in the coming day, there is a fourth group that is going to be vital at Monday’s meeting.
In order to reach a 10 million bpd cut, OPEC will have to convince all other oil-producing countries to contribute. At present, convincing such a large list of independent nations to join these efforts seems unrealistic. Countries such as Libya, Iran, Iraq, Brazil, and Canada, are unlikely to agree at present to cut production.
This is yet another reason that the OPEC meeting will likely fail on Monday.
The real fear for markets at the moment should be sentiment and expectation. After Trump’s tweet cited a 10-15 million barrel per day cut, oil prices have soared and anything less than that will be seen as a failure. After what is looking set to be a fairly quiet weekend for energy markets, a Monday failure with plenty of media attention is likely to drive markets into a frenzy. This fear, combined with continued demand destruction could serve as a serious problem for oil markets next week.
With this in mind, the rational short-term approach of OPEC+ should be, especially for Riyadh and Moscow, to not move at all. Don’t increase production, stand on the quay and watch the US shale and non-OPEC VLCCs fill oil storage to the brim. If OPEC+ cuts without the assistance of other nations it will lose future leverage and markets may crash anyway. By doing nothing, Saudi Arabia and Russia can maintain the illusion that a production cut from OPEC+ would save markets.
Fired Navy Carrier Captain Who Penned Leaked Letter Tests Positive For COVID-19
The Navy captain who has been at the center of controversy for penning a scathing letter to the Navy’s top command over a lagging response to coronavirus ravaging his crew aboard the USS Theodore Roosevelt nuclear aircraft carrier in the West Pacific — now docked at Guam amid the emergency — has tested positive for COVID-19.
The New York Times reports that two Naval Academy classmates of Capt. Brett E. Crozier’s who are close to him and his family confirmed the diagnoses even as the US Navy remains mum. There are currently at least 155 confirmed cases of Covid-19 among sailors aboard the aircraft carrier, according to the Pentagon.
“The commander began exhibiting symptoms before he was removed from the warship on Thursday, two of his classmates said,”NYT reports.
Capt. Brett E. Crozier, via US Navy
He had been relieved of command but kept his military rank after the letter was leaked to The San Francisco Chronicle. He expressed in writing that the Navy’s prioritizing military readiness at a moment the virus threatened to spread across his close quarters crew of some 5,000 total sailors was putting lives at risk.
“We are not at war. Sailors do not need to die. If we do not act now, we are failing to properly take care of our most trusted asset — our Sailors,” Crozier had written. If the Navy focuses on being battle ready, it will lead to “losses to the virus,” Crozier had said.
The firing has unleashed a torrent of criticism against Trump, while others argued that in the military, following your conscience often means losing your stripes.
The Pentagon, however, framed it in terms of irresponsible utilization of “chain of command” and unclassified communications systems, putting national security at risk.
Thomas B. Modly, the acting secretary of the Navy, said he had lost confidence in Crozier’s ability to command the ship effectively as it dealt with the evolving crisis after Crozier sent the letter on an unclassified email system to 20 to 30 people.
Sending such a letter, Modly said, caused unnecessary alarm about the operational readiness of the ship and undermined the chain of command. “In sending it out pretty broadly, he did not take care to ensure that it couldn’t be leaked,” Modly said. “And that’s part of his responsibility.”
The controversial firing was capped Friday with a dramatic sendoff given by hundreds of sailors as Crozier disembarked from the ship for the last time.
Watch this video of the send off of Captain Crozier, commander of the aircraft carrier USS Roosevelt who was fired yesterday for sounding the alarm to protect his sailors. Tells you everything you need to know about the type of #leader he is. pic.twitter.com/z9q3pTJpgZ
Video showed a crowded deck as the carrier was at Guam – where infected and quarantined individuals have been removed to the naval base – chanting Crozier’s name in an emotional show of support as the now former carrier commander waved goodbye.
Boris Johnson Admitted To Hospital Due To “Persistent” Coronavirus Symptoms
Ten days after Boris Johnson was first diagnosed with the coronavirus, moments ago a Downing Street spokesman said that the UK Prime Minister is being admitted to an undisclosed hospital for tests due to “persistent symptoms” including a high fever.
“On the advice of his doctor, the Prime Minister has tonight been admitted to hospital for tests.”
“This is a precautionary step, as the Prime Minister continues to have persistent symptoms of coronavirus ten days after testing positive for the virus” a Downing Street spokesperson said in a statement.
“The prime minister thanks NHS staff for all of their incredible hard work and urges the public to continue to follow the government’s advice to stay at home, protect the NHS and save lives.”
Johnson remains in charge of the government, and is in contact with ministerial colleagues and officials.
Goldman: After The Crash Of 2020, Corporate Earnings Won’t Recover Until 2023
On Friday morning, around the time of the dismal payrolls report which was not only the first negative print in a decade ending the longest streak of positive jobs reports in history, but was 7x worse than consensus, as sellside desks scrambled to update their daily apocalyptic GDP forecasts, Morgan Stanley did two things: it released a Q2 GDP forecast of -38%, the most depressionary of all investment banks…
… but more importantly, it killed the still lingering idea of a V-shaped recovery for good, warning that the level of real activity in its forecasts remains below its 4Q19 level until the end of 2021: a sharper loss of real GDP compared with the 2008 recession.
So if the economy will take at least 18 months – in a best case – to get back to normal, what does that leave for that 1st derivative of the broader economy, namely corporate profits.
The answer, according to a new report from Goldman’s Peter Oppenheimer, is that it would take roughly 4 years for earnings to get back to where they were at the start of the year.
First, the Goldman strategist lays out the bank’s forecast for SXXP EPS for 2020 through 2022, which shows a cataclysmic plunge this year, when nearly half of corporate profits are wiped out, which however is followed by a sharp rebound of 50% and 11% in 2021 and 2022 respectively.
Incidentally, the 2020 contraction will be nearly twice as bad as the global financial crisis, which means that a few years in the future, we will no longer be saying “since Lehman” because “since covid” will be the new catchphrase.
And speaking of “Lehman”, back then EPS plunged 48%, so Goldman’s 45% forecast for the current year may end up being overly optimistic.
So going back to the bank’s near-term forecasts, which a 50% rebound may sound impressive, consider that after a 50% drop one needs a 100% surge to get back to breakeven. And sure enough, even with Goldman’s aggressive optimistic outer year predictions, the collapse in 2020 means that EPS unlikely to return to previous peaks until 2023. Ironically the 2023 “recovery” EPS will be the same level that was reached all the way back in 2007. In other words, between the global financial crisis and the coronacrisis, some 15 years of earnings growth has been wiped out!
To justify it’s dismal outlook, Goldman looks at history and finds that after a crisis, it normally takes 3 years to get back to previous EPS levels.
Finally here is a breakdown of which sectors will be impacted the most from the bearish coronavirus scenario.
It’s worth recalling that in 2019 earnings were essentially flat as a result of the whole trade war spat with China (remember that?), in other words, between 2018 and 2023 there will be no earnings growth.
… which as Goldman’s David Kostin said “will have a significant impact on the equity market”, and suddenly any bull case forecasts for the next few years look incredibly shaky.
Starting in the Obama administration the U.S. increased its full spectrum dominance campaign against Russia as an extension of its goals to destabilize the entire Middle East.
Russia’s intervention into the war in Syria after the so-called Arab Spring across North Africa emerged over an eighteen month period as the demarcation line between the unipolar moment of U.S. hegemony and the beginning of the multi-polar world now well underway.
From the moment President Putin brokered an agreement to halt the U.S. invasion of Syria over the chemical weapons attack blamed on Syria’s President Bashar al-Assad Putin has been the main focus of U.S. foreign policy.
That focus has shifted now.
The thwarted invasion, helped by the betrayal of the U.K. parliament of Prime Minister David Cameron, set the stage for turning the Maidan uprising in Kiev into the ouster of Ukrainian President Viktor Yanukovich and the bloody war to prevent Donbass secession that has raged since then.
That led to Russia’s reunification of Crimea and the worst strategic defeat for the U.S. since Vietnam.
Now, I bring up this history not to pedantically repeat myself but to remind you of how deep the roots of U.S. policy are and how hard it is and how long it takes to turn the ship of statecraft and point it somewhere else.
Because we’re nearly seven years since Putin stepped in to help President Obama save face over his ‘red lines’ in Syria. We’re six years and a month since the Crimea vote which the U.S. still refuses to acknowledge even though Crimea is healthier, happier and more prosperous despite sanctions than it ever was as part of Ukraine.
Events of the past few weeks have shifted the narrative significantly thanks to COVID-19 and the Coronapocalypse it has engendered. The escalating back and forth between the U.S. and China over this pandemic I would normally dismiss as typical statecraft and bloviating between rivals looking to create a small gain here or there.
But this time I don’t think that’s the case. There’s something much more serious happening here. Donald Trump has been making his pivot to China as the real threat to the U.S.’s future world standing a priority since the day he was elected.
And he has been hampered and dogged in this the entire time by the Democratic Party and its Clintonista and Obamaite holdovers in the CIA, State Dept. and both sides of the legislature who clearly work for the globalist oligarchy I love to call The Davos Crowd.
One could easily make the argument that RussiaGate itself was an extension of Chinese influence over the Democrats, which has been China Occupied Territory going back to the Clinton Adminstration.
And that has had the disastrous effect of putting the U.S. at odds with everyone who Trump thinks looks at him cross-eyed. The die-hard neoconservatives want him to finish their encirclement of Russia and secure Israel’s future as an energy exporter to Europe and destroying Iran.
The globalists of both Clintonian and Obaman persuasion want him to continue cozying up to China, outsourcing America’s productive capacity and propping up the failing European Union.
And he’s been focused on realigning our foreign policy towards China to reverse the globalism and decouple the U.S. economy from China. He’s used the crudest of tools, trade wars and tariffs, but there’s little denying what the goal has been.
And with the Coronapocaplyse coming on the heels of bitter confrontations in Hong Kong, Iraq, the Philippines, Kashmir, and Iran Chinese/U.S. relations have hit a new low as both sides openly accuse the other of a bio-weapon attack via COVID-19.
It doesn’t matter if the accusations are true or not. Likely neither claim is true. What is relevant is that both are using it to justify fundamental shifts in rhetoric to justify shifts in policy.
So, in contrast to the bitter words between the U.S. and China over COVID-19 and the growing propaganda operations by both governments, we have a pivotal phone call between Trump and Putin which seems very well timed.
So Putin now emerges as someone Trump can do business with when the chips are down. He found out Putin’s character when presented with a real crisis while MbS reacted with belligerence and, worse from Trump’s perspective, incompetence.
MbS has been incapable of wrangling OPEC into any kind of regional force. He’s started a price war while Trump is paying for defense of his oil fields from Yemeni attacks.
So, right now it seems to me the perfect opportunity for Putin and Trump to put MbS and the rest of OPEC in its place and dictate terms as to how the oil markets of the future will look.
I’m not suggesting that Putin and Trump will bury the hatchet or anything, but they need each other in many ways. And they will need to tone things down on a number of fronts, especially the Middle East and Ukraine, if Trump is going to successfully pull the U.S. out of China’s economic orbit.
Putin’s partnership with China, his friendship with Chinese Premier Xi Jinping is an asset which Trump can use to broker deals between all three nations during his second term if he survives this Coronapocalypse.
But he has to get through this summer and the concerted effort on the part of The Davos Crowd to destroy the U.S. economy through mismanagement of this pandemic and the insane power grab that is on the table.
It’s more pronounced and obvious in Europe, which I’ve talked about at length in previous posts (here and here), but it’s a real concern in the U.S. Riders on all of these stimulus bills will see the Democrats getting some of their worst ideas made manifest at the national level even after we see broad usurpation of power by officials at the state level.
This, by all accounts, is a cheap and effective solution to the virus, which can be treated for around $20. And when people truly realize just how thoroughly ideological hacks like Bill DeBlasio, Andrew Cuomo, Emmanuel Macron of France and the media tried to kill their loved ones for their political gain, their anger will be explosive.
The attacks on Trump from all the usual suspects in the media after he let it ‘slip’ at that infamous press conference that the drug could be promising are a dead giveaway that he broke containment on the severity of the crisis.
If Trump did that against everyone’s advice it may turn out to be the most influential act of his presidency.
Becuase, there’s something not adding up about this Coronapocaplypse. I’m becoming more and more convinced this is a naked power grab during a crisis by The Davos Crowd to retain control while the financial and political systems fail.
The sheer speed we’ve gone from it’s just China’s problem to cries of the need for global government, gun control, nationalization of industry and financial repression has given even the most paranoid of us whiplash.
And if Trump suspects that China was assisting his political enemies in withholding treatment for COVID-19 to do damage to him politically, true or otherwise, this will forever change the nature of the U.S’s relationship with China.
He already believes they purposefully downplayed the disease to let it infect the world.
This will accelerate the decoupling of their economies and set them on a path indistinguishable from open warfare.
Putin then becomes a very interesting middle man standing between these two behemoths struggling with maintaining their standing in the world while their economic and political fortunes metastacize in the new world built on a whole lot less credit and public trust.
Regardless of where things go from here, it should be obvious by now that Trump is ready to pursue a different path if he’s given the chance. It’s clear he’s still battling the remnants of the Clintonista and Obamaite globalists within the U.S. bureaucracy of dubious loyalty.
But after guiding the U.S. through this pandemic and the financial crisis it has catalyzed, he may be in a position in his second term to beat The Davos Crowd one more time.
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There Are Still At Least A Half Dozen Cruise Ships With Passengers Out To Sea
You’d think the last place you’d want to be during the coronavirus pandemic is aboard a cruise ship – especially given one horror story after the next about ships being placed under quarantine, not being able to find a place to dock and passengers getting sick and coming down with the coronavirus.
Which is why it’s stunning to learn that there is still at least a half-dozen ships out at sea, with passengers and crew, navigating lengthy trips back to port, according to Bloomberg.
About a month ago, there were hundreds of ships still in service and dozens out to sea.
Recall, we covered the Diamond Princess cruise ship at length, a ship where 700 of its 3,000 passengers eventually tested positive for the coronavirus. Eight of those passengers wound up dying.
Around a month later, the Grand Princess cruise ship was struck with coronavirus – with 21 of its 3,533 passengers (2,422 gues and 1,111 crew) testing positive for the virus. The ship was held off the coast of San Francisco while testing was conducted.
Finally, just this past week, Carnival Corp’s MS Zaandam was forced to dock in Ft. Lauderdale after 193 people were sickened – more than 10% of the ship – and four passengers died out of a total of 1,829 people on board.
Cruise companies have been forced to suspend operations, with companies like Carnival and Royal Caribbean seeing their stocks get decimated over the last month. The President even requested that Carnival Cruises, Royal Caribbean, Norwegian Cruise Line and MSC cruises halt outbound travel for 30 days.
And while the number of ships at sea has dropped off dramatically, it still hasn’t gone to zero.
While more ships have returned to their respective ports, and many have been moved with just crew onboard, Carnival still has five ships with passengers aboard. MSC Cruises also has a ship with passengers that is out to sea. These ships were thousands of miles from their respective ports when operations were suspended and are in the midst of returning.
