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Fox Business Network has confirmed a Reuters report from earlier this morning claiming the Trump Administration blocked a shipment of semiconductors to Huawei on Friday, prompting threats from Beijing.

Earlier, the news set off the anxieties about the deteriorating US-China bilateral relationship that sent markets lower at the open.

•    LARGE U.S SHIPMENT OF SEMICONDUCTOR CHIPS GOING TO HUAWEI BLOCKED BY TRUMP ADMIN THIS MORNING – FBN

According to Reuters, a new policy unveiled by the Commerce Department has expanded US authority to require licenses for sales to Huawei of semiconductors made abroad with US tech, which will vastly expand the US’s power to stop exports and cut off vital supplies of semiconductors that Huawei will have difficulty sourcing elsewhere.

“This action puts America first, American companies first, and American national security first,” a senior Commerce Department official told reporters in a telephone briefing on Friday.

Unsurprisingly, the reaction from China was swift: China’s Global Times warned that Beijing was ready to put US companies – including Qulacomm and Apple – on an “unreliable entity list” as part of its countermeasures.

In addition to these restrictions, later Friday morning, the Trump administration dispatched Commerce Secretary Wilbur Ross for an interview on Fox Business. Ross (likely the source of the anonymously sourced comment above) explained that the department is changing its policies to block Huawei’s use of American software in overseas manufacturing, closing a loophole that the Chinese manufacturer had relied on to circumvent US sanctions.

The Commerce Department’s Bureau of Industry and Security is revising its foreign-produced direct product rule and the “Entity List” – the US blacklist that Huawei was supposedly added to more than a year ago, though the US has been reluctant to bring the hammer down so far – to “narrowly and strategically: target Huawei’s acquisition of semiconductors that are the direct product of U.S. software.

“There has been a very highly technical loophole through which Huawei has been able to use U.S. technology with foreign fabrication producers,” Ross said. “This first rule about foreign direct product is a very highly tailored thing to try to correct that loophole. That will have a very powerful impact. We never intended that loophole to be there.”

Watch below:

Threatening the viability of a company like Huawei is a major escalation on behalf of the US. At this point, we’re starting to wonder if Trump plans to distract from his handling of the virus response by starting WWIII.

A quarter of US restaurants will go out of business due to the COVID-19 pandemic, according to a forecast by OpenTable, which reported that total restaurant reservations and walk-in customers have fallen 95% over the previous year ending May 13.

The company tracks over 54,000 restaurants on its reservation site, which offers the ability to make online, walk-in, and phone reservations – but does not track data for take-out and deliveries, according to Bloomberg.

The company’s data shows that there are growing signs that patrons are willing to dine out again in states like Arizona and Texas where it’s allowed, though the numbers are still far below where they were last year.

Scottsdale showed the greatest improvement. It had zero reservations almost every day since March 21, but on May 13 this eased to a down 72% from reservations on the same day in 2019. The next most significant recoveries were in Houston and Phoenix. –Bloomberg

At the state-level, Florida showed the greatest statewide gain, with foot traffic only down 83% y/y after launching a phased reopening May 4 during which restaurants were allowed to operate at one-quarter capacity.

Indiana, which is now in phase two – allowing restaurants to operate at 50% of capacity – has come in second. The state is planning on a full reopening by the Fourth of July.

“Restaurants are complicated beasts,” said Steve Hafner, CEO of OpenTable parent company, Booking Holdings. “You have to order food and supplies. You have to make sure you’ve prepped the kitchen and service areas to be easily disinfected.”

According to Hafner, state unemployment benefits with the federal booster is one reason why restaurants have struggled to hire help. “A lot of people are making $1,200 a week doing nothing. That’s good pay.”

Meanwhile, restaurateur Danny Meyer – who shut down all of his 19 New York restaurants on March 13, says his dining rooms will stay closed for the foreseeable future, according to Bloomberg.

“We won’t be welcoming guests into our full-service restaurants for a very long time—probably not until there’s a vaccine,” he said, adding “There is no interest or excitement on my part to having a half-full dining room while everyone is getting their temperature taken and wearing masks, for not much money.”

“It’s very frustrating, but it’s the only safe way to go,” he added.

It’s a caution shared by fellow restaurateur Daniel Humm, who said he may not re-open Eleven Madison Park at all, and by David Chang who just announced the closing of his Chelsea restaurant Nishi and his Washington, DC, Momofuku location.

Meyer, in the meantime, is taking the first steps back into business by opening his café Daily Provisions for take out service as early as next week. The storefront, which is next to Union Square Café on East 19th St., was designed for grab-and-go coffee, breakfast sandwiches, and signature crullers. Initially, it will open for curbside pickup of breakfast items, with an expanded menu expected to follow. –Bloomberg

Meyer will likely open his Flatiron District pizza restaurant, Marta, for takeout – saying “We had been on the cusp of takeout at Daily Provisions, Marta, and Blue Smoke [the company’s barbecue spot] when we closed. It makes sense now.”

“I would think about anything that is safe and profitable. If it’s not safe, we won’t do it, we all lose,” he said, adding “Profitable matters, as well. The only way we can responsibly get back in the business of employing people is to not go out of business. It’s already incredibly hard to survive.“

Authored by Aaron Maté via RealClearInvestigations.com,

CrowdStrike, the private cyber-security firm that first accused Russia of hacking Democratic Party emails and served as a critical source for U.S. intelligence officials in the years-long Trump-Russia probe, acknowledged to Congress more than two years ago that it had no concrete evidence that Russian hackers stole emails from the Democratic National Committee’s server.

Crowdstrike President Shawn Henry: “We just don’t have the evidence…”

CrowdStrike President Shawn Henry’s admission under oath,  in a recently declassified December 2017 interview before the House Intelligence Committee, raises new questions about whether Special Counsel Robert Mueller, intelligence officials and Democrats misled the public. The allegation that Russia stole Democratic Party emails from Hillary Clinton, John Podesta and others and then passed them to WikiLeaks helped trigger the FBI’s probe into now debunked claims of a conspiracy between the Trump campaign and Russia to steal the 2016 election. The CrowdStrike admissions were released just two months after the Justice Department retreated from its its other central claim that Russia meddled in the 2016 election when it dropped charges against Russian troll farms it said had been trying to get Trump elected.

Henry personally led the remediation and forensics analysis of the DNC server after being warned of a breach in late April 2016; his work was paid for by the DNC, which refused to turn over its server to the FBI. Asked for the date when alleged Russian hackers stole data from the DNC server, Henry testified that CrowdStrike did not in fact know if such a theft occurred at all: “We did not have concrete evidence that the data was exfiltrated [moved electronically] from the DNC, but we have indicators that it was exfiltrated,” Henry said.

Henry reiterated his claim on multiple occasions: 

• “There are times when we can see data exfiltrated, and we can say conclusively. But in this case it appears it was set up to be exfiltrated, but we just don’t have the evidence that says it actually left.”

• “There’s not evidence that they were actually exfiltrated. There’s circumstantial evidence but no evidence that they were actually exfiltrated.”

• “There is circumstantial evidence that that data was exfiltrated off the network… We didn’t have a sensor in place that saw data leave. We said that the data left based on the circumstantial evidence. That was the conclusion that we made.”

• “Sir, I was just trying to be factually accurate, that we didn’t see the data leave, but we believe it left, based on what we saw.”

• Asked directly if he could “unequivocally say” whether “it was or was not exfiltrated out of DNC,” Henry told the committee: “I can’t say based on that.” 

Rep. Adam Schiff: Democrat held up interview transcripts, but finally relented after acting intel director Richard Grenell suggested he would release them himself. (Senate Television via AP)

In a later exchange with Republican Rep. Chris Stewart of Utah, Henry offered an explanation of how Russian agents could have obtained the emails without any digital trace of them leaving the server. The CrowdStrike president speculated that Russian agents might have taken “screenshots” in real time. “[If] somebody was monitoring an email server, they could read all the email,” Henry said. “And there might not be evidence of it being exfiltrated, but they would have knowledge of what was in the email. … There would be ways to copy it. You could take screenshots.” 

Henry’s 2017 testimony that there was no “concrete evidence” that the emails were stolen electronically suggests that Mueller was at best misleading in his 2019 final report, in which he stated that Russian intelligence “appears to have compressed and exfiltrated over 70 gigabytes of data from the file server.”

It is unlikely that Mueller had another source to make his more confident claim about Russian hacking. 

The stolen emails, which were published by Wikileaks – whose founder, Julian Assange has long denied they came from Russia – were embarrassing to the party because, among other things, they showed the DNC had favored Clinton during her 2016 primary battles against Sen. Bernie Sanders for the presidential nomination. The DNC eventually issued an apology to Sanders and his supporters “for the inexcusable remarks made over email.” The DNC hack was separate from the FBI’s investigation of Clinton’s use of a private server while serving as President Obama’s Secretary of State. 

The disclosure that CrowdStrike found no evidence that alleged Russian hackers exfiltrated any data from the DNC server raises a critical question: On what basis, then, did it accuse them of stealing the emails? Further, on what basis did Obama administration officials make far more forceful claims about Russian hacking?

Michael Sussmann: This lawyer at Perkins Coie hired CrowdStrike to investigate the DNC breach. He was also involved with  Fusion GPS and Christopher Steele in producing the discredited Steele dossier.

The January 2017 Intelligence Community Assessment (ICA), which formally accused Russia of a sweeping influence campaign involving the theft of Democratic emails, claimed the Russian intelligence service GRU “exfiltrated large volumes of data from the DNC.” A July 2018 indictment claimed that GRU officers “stole thousands of emails from the work accounts of DNC employees.”

According to everyone concerned, the cyber-firm played a critical role in the FBI’s investigation of the DNC data theft. Henry told the panel that CrowdStrike “shared intelligence with the FBI” on a regular basis, making “contact with them over a hundred times in the course of many months.” In congressional testimony that same year, former FBI Director James Comey acknowledged that the FBI “never got direct access to the machines themselves,” and instead relied on CrowdStrike, which “shared with us their forensics from their review of the system.” According to Comey, the FBI would have preferred direct access to the server, and made “multiple requests at different levels,” to obtain it. But after being rebuffed, “ultimately it was agreed to… [CrowdStrike] would share with us what they saw.”

Henry’s testimony seems at variance with Comey’s suggestion of complete information sharing. He told Congress that CrowdStrike provided “a couple of actual digital images” of DNC hard drives, out of a total number of “in excess of 10, I think.” In other cases, Henry said, CrowdStrike provided its own assessment of them. The firm, he said, provided “the results of our analysis based on what our technology went out and collected.” This disclosure follows revelations from the case of Trump operative Roger Stone that CrowdStrike provided three reports to the FBI in redacted and draft form. According to federal prosecutors, the government never obtained CrowdStrike’s unredacted reports.

CrowdStrike’s newy disclosed admissions raise new questions about whether Special Counsel Robert Mueller (above), intelligence officials and Democrats misled the public.

There are no indications that the Mueller team accessed any additional information beyond what CrowdStrike provided. According to the Mueller report, “the FBI later received images of DNC servers and copies of relevant traffic logs.” But if the FBI obtained only “copies” of data traffic – and not any new evidence — those copies would have shown the same absence of “concrete evidence” that Henry admitted to.

Adding to the tenuous evidence is CrowdStrike’s own lack of certainty that the hackers it identified inside the DNC server were indeed Russian government actors. Henry’s explanation for his firm’s attribution of the DNC hack to Russia is replete with inferences and assumptions that lead to “beliefs,” not unequivocal conclusions.  “There are other nation-states that collect this type of intelligence for sure,” Henry said, “but what we would call the tactics and techniques were consistent with what we’d seen associated with the Russian state.” In its investigation, Henry said, CrowdStrike “saw activity that we believed was consistent with activity we’d seen previously and had associated with the Russian Government. …  We said that we had a high degree of confidence it was the Russian Government.”

But CrowdStrike was forced to retract a similar accusation months after it accused Russia in December 2016 of hacking the Ukrainian military, with the same software that the firm had claimed to identify inside the DNC server. 

The firm’s work with the DNC and FBI is also colored by partisan affiliations. Before joining CrowdStrike, Henry served as executive assistant director at the FBI under Mueller. Co-founder Dmitri Alperovitch is a vocal critic of Vladimir Putin and a senior fellow at the Atlantic Council, the pro-NATO think tank that has consistently promoted an aggressive policy toward Russia. And the newly released testimony confirms that CrowdStrike was hired to investigate the DNC breach by Michael Sussmann of Perkins Coie – the same Democratic-tied law firm that hired Fusion GPS to produce the discredited Steele dossier, which was also treated as central evidence in the investigation. Sussmann played a critical role in generating the Trump-Russia collusion allegation. Ex-British spy and dossier compiler Christopher Steele has testified in British court that Sussmann shared with him the now-debunked Alfa Bank server theory, alleging a clandestine communication channel between the bank and the Trump Organization.

Henry’s recently released testimony does not mean that Russia did not hack the DNC. What it does make clear is that Obama administration officials, the DNC and others have misled the public by presenting as fact information that they knew was uncertain.  The fact that the Democratic Party employed the two private firms that generated the core allegations at the heart of Russiagate — Russian email hacking and Trump-Russia collusion – suggests that the federal investigation was compromised from the start.

The 2017 Henry transcript was one of dozens just released after a lengthy dispute. In September 2018, the Republican-controlled House Intelligence Committee unanimously voted to release witness interview transcripts and sent them to the U.S. intelligence community for declassification review. In March 2019, months after Democrats won House control, Rep. Adam Schiff ordered the Office of the Director of National Intelligence (ODNI) to withhold the transcripts from White House lawyers seeking to review them for executive privilege. Schiff also refused to release vetted transcripts, but finally relented after acting ODNI Director Richard Grenell suggested this month that he would release them himself.

Several transcripts, including the interviews of former CIA Director John Brennan and Comey, remain unreleased. And in light of the newly disclosed Crowdstrike testimony, another secret document from the House proceedings takes on urgency for public viewing. According to Henry, Crowdstrike also provided the House Intelligence Committee with a copy of its report on the DNC email theft. 

Earlier today, Rabobank’s Micheal Every lamented that “One Day The Main Story Will Not Be US-China Relations… But Today Is Not That Day.” And with the US now commencing a lockout of Chinese telecom giant Huawei, with Beijing vowing to retaliate against Boeing, Qualcomm and Apple, tomorrow isn’t looking good either, nor the next day, or the day after. In fact, it is safe to say that the increasingly belligerent rhetoric – and deeds – between the US and China will continue to escalate until the Nov 3 election, and potentially beyond it.

There is a very simple reason for that: in a nation that seems impossibly divided on most issues and is ideologically polarized more than ever in history, China is the one thing that more than two-thirds of Americans can agree on, and they agree that they simply do not like China.

Commenting on the chart above, Goldman says that the bank sees risk of “further bilateral disputes ahead, especially as the coronavirus pandemic and low energy prices may make it more difficult for China to meet the trade deal’s $200bn purchase agreement.”

At the same time, Goldman also believes the upcoming US presidential election, “coupled with deteriorating sentiment towards China among Americans, will make it harder for US policymakers to strike a conciliatory tone on China.”

Indeed, as the chart above shows, Americans’ views toward China have worsened significantly in recent years, with the percent holding an “unfavorable” view of China reaching an all-time high in the latest Gallup survey. In fact, if there is one thing that still unites both Republicans and Democrats, it is their shared hatred of China, which of course is music to Trump’s ears as he keeps escalating tensions with Beijing into November.

Taken together, Goldman thinks that “the risk of tariff concerns re-escalating cannot be ruled out, and the risk of
non-tariff action has risen.”

And while the bank estimates that potential trade tensions have not been a significant driver of China-related assets, and coronavirus developments will likely continue to be the more meaningful determinant of risk appetite, Goldman expects “US-China tensions to increasingly come into focus as we head towards US elections in November, presenting downside market risk and the potential for an abrupt shift in near-term valuations.”

As such, the former central bank incubator (and current subprime lender) recommends that investors consider adding hedges for this risk through USD longs versus CNH, especially as we find that the CNY has tended to depreciate against the Dollar when new tariffs are announced, which may be because the currency acts as a direct offset to tariffs.

Authored by Mike Shedlock via MishTalk,

The Cass Freight Index report discusses the Lost April. But what’s next?

Is May the Shipping Bottom? 

The Cass Freight Report suggests April is the bottom while blaming what has happened as a self-inflicted wound.

The Cass Freight Index showed the expected big dip in activity last month, after all the March consumer panic buying subsided, leaving us with just the negative impact of shut-in orders and rising unemployment levels. For April, the overall index for both shipments and expenditures fell sharply y/y to recessionary levels. This is concerning but would be more concerning if it weren’t a self-inflicted wound. Businesses and mobility were severely limited by unprecedented governmental restrictions in April, and those are loosening here in May and should further loosen on their way back to “normal” in June. 

Cass April Shipping Level 

Cass Freight Index

There are many addition charts and the report is well worth a look, but here is another snip that caught my eye.

Shipment volumes dropped 22.7% vs April 2019 levels, and we believe this will mark the bottom. May should be better, as the U.S. economy slowly begins to re-open and some manufacturing plants turn back on (many automotive OEMs are targeting plant re-openings in the next week or two). 

Self-Imposed

Covid was not self-imposed. 

US Covid-19 Deaths 

March, April, May

• March 13, 2020: 40

• April 13, 2020: 22,108

• May 13, 2020: 82,387

The above data points are from Our World.

In precisely two months, the number of US Covid-19 deaths went from 40 to 22,108 to 82,387.

And those deaths are way underestimated by any rational measure although numerous poorly-written articles and theories claim otherwise.

Cass Freight Index Showed Economic Weakness Way Before the Pandemic

I commented on that aspect last month in Cass Freight Index Showed Economic Weakness Way Before the Pandemic

Ever since Cass outsourced production of this report to Stifel, the Cass report been one of rampant overoptimism.

The original writers (named Cass) were sounding recession signals whereas Stifel writer David G. Ross, spoke of signs of a freight bottom for the last few months.

We can never prove which view is correct, but seeing signs of a bottom in a recovery that was already the longest in history seems more than a bit questionable.

Not Self-Inflicted

This was not self-inflicted although we do not know and never will how many deaths would have occurred had the US done nothing.

Key Rebuttal Points

• Even had the US done nothing, with the rest of the world shut down and supply chains totally wrecked, precisely how was US manufacturing supposed to stay intact?

• With deaths soaring to 82,387 from 40, it is irrational to presume bar and restaurant traffic would have done anything other than collapse.

Bottom In?

Perhaps Ross is correct. But that is not the issue. 

The speed and shape of the recovery are the issues.

Fed’s Three-Point Assessment

Fed Chair Jerome Powell gave this assessment today: 

1. “The path ahead is both highly uncertain and subject to significant downside risks.”

2. “The loss of thousands of small- and medium-sized businesses across the country would destroy the life’s work and family legacy of many business and community leaders and limit the strength of the recovery when it comes.”

3. “The result could be an extended period of low productivity growth and stagnant incomes.”

Negative Rates Not an Option

For discussion of those points and also the Fed’s assessment of negative interest rates, please see Negative Rates Are Not an Option

Realistically, we should now toss ideas of a bottom in April (as the Cass report suggested last month) or even May, as the latter is essentially irrelevant.

Unfortunately, the Covid-19 Recession Will Be Deeper Than the Great Financial Crisis.

Don’t expect a V-shaped recovery. 

That thought applies to restaurants, manufacturing and shipping as a direct consequence.

With the chart of the forward S&P500 P/E making the rounds – and rising by the day as consensus EPS decline even as stocks keep rising – Deutsche Bank has come up with a new chart to “normalize” for the near term earnings noise, and is now looking at 2-year forward earnings instead of only 1 year. Unfortunately, it fails to show a more reasonable result, with the resulting P/E at an all time high of just below 23x (time to look at a 36 month forward P/E ratio then?)

But even if one uses just the “cheaper” 1 year forward P/E, as Bank of America has done, the 20.4x S&P 500 forward P/E puts the  market over 1.5x standard deviations above the average of 15.4x and three-quarters of the way to the Tech Bubble high of 25x.

This means that as BofA’s Savita Subramanian notes, “stocks are trading above average on every valuation metric we track except bonds”, which of course are also in a bubble as central banks are buying industrial quantities of global debt.

Bullish traders – being an inquisitive, hard-working lot – have found a “solution” to the market’s overvalution. Just ignore it.

As Subramanian notes, “we hear the complain that “P/E ratios are growing increasingly irrelevant” a lot – that comparing today’s market multiple to historical averages (an exercise that we have found to be useful for a long-term outlook) is not a worthwhile exercise, since we have veered off the grid in terms of comparable periods.” Actually, the “solution” is not new at all: humans have always ignored any data that invalidates their priors or jeopardizes their intellectual echo chamber. And let’s not forget that, as BofA reminds us “the irrelevance of P/Es was a refrain of the early 2000s, right before the Tech Bubble burst.”

That said, never before have rates been so low, even as the US is set to issue over $5 trillion in new debt this calendar year…

… skewing return incentives and forcing yield-starved investors into the guaranteed disaster that are equities.

Which is why as BofA concludes, a “fair value” market approach should incorporate today’s ultra-low rate environment.” The  problem is that fair value analysis is very sensitive to inputs, especially the equity risk premium (ERP). During the post-Global Financial Crisis period, the S&P 500 ERP has ranged from 394 – 695bp, which would yield a range from 1882 to 2958 using normalized 2021 earnings of $155 The median ERP since 1986 excluding the Tech bubble is about 350bp, which would yield 3269 for the S&P500.

And, as the sensitivity table below laying out different 2021 EPS and ERP assumptions shows…

… the fair value of the S&P, based on how overvalued bonds are – thanks to record central bank buying and a global economic depression  – is anywhere between 1900 and 3000, according to Bank of America.

And with that, good luck to all traders who hope to best the algos and make money in a market where the fundamentals have now lost their mind.

Well that escalated quickly…

Drilling rigs targeting crude oil in the U.S. fell by 34 to 258, the lowest since July 2009… and production is starting to collapse…

Source: Bloomberg

Indeed, as OilPrice.com’s Hely Zaremba notes, US Shale needs to slow down to survive…

Rigs targeting oil in the:

• Permian: -23 to 175

• Eagle Ford: -3 to 23

• DJ Niobrara: unchanged at 7

• Williston: -4 to 16

• Cana Woodford: unchanged at 4

• Others: -2 to 29

It has been a bleak couple of months for oil markets. Although markets recovered after going negative for the first time in history earlier this month, they didn’t recover to nearly their pre-corona levels, and all of the factors that pushed the West Texas Intermediate crude benchmark to nearly $40 below zero per barrel still persist. Thanks to a pandemic-fuelled oil price war between Saudi Arabia and Russia, the leading OPEC+ members, there continues to be a massive global oil glut and a worsening storage deficit. Things have been looking up, however. The output cuts have made a dent in the global oversupply and demand is beginning to recover a bit after taking a huge hit from industrial shutdown due to the pandemic.

On Monday Saudi Arabia announced that it will impose even more production cuts, and markets rose in response.

“Saudi Aramco, the state-controlled oil company, will produce 7.5 million barrels a day in June, down from more than 12 million in April,” reported Barron’s. Although Saudi Arabia has been overtaken by the United States as the biggest oil producer in the world thanks to the latter nation’s “shale revolution,” Saudi Aramco’s decisions are still hugely influential on the global stage.

Their production cuts therefore bode extremely well for the international oil markets. 

But it’s not all sunshine and roses.

“There’s a double risk on the horizon,” writes Julian Lee in an opinion piece for Bloomberg.

“Just as lifting lockdowns too soon could bring a second spike in virus infections and deaths, loosening the hard-fought restraint in oil production too soon risks a second oil-price collapse.”

The United States will have to walk a very fine line if they want to have any chance at reviving the shale industry that is currently drowning in a wave of bankruptcies and fired and furloughed employees. 

As restrictions are being eased in many countries around the world, oil demand is beginning to pick up, but “it is still far from the year-on-year growth we experienced before the novel coronavirus struck, or from any kind of meaningful start at drawing down ballooning stockpiles. But it might just be an initial turning of a corner — as long as there’s no need to stop the global economy again to keep the Covid-19 outbreak under control,” opines Bloomberg’s Lee. The opinion column looks to the way that China, which is ahead of the rest of the world in its pandemic curve, for how they have navigated the delicate balance between opening up the economy and preventing a COVID-19 resurgence.

The situation in China can teach us a lot about what to expect for fuel demand in the coming months.

“Congestion on roads in major cities has soared during peak commuting hours, but it remains depressed outside those times, with traffic levels still well below normal during the weekend and on holidays,” writes Lee.

“Meanwhile, people are choosing to drive rather than take public transport, boosting gasoline demand, a trend that’s likely to continue for a considerable time in big cities around the world. In Beijing, for example, subway passenger numbers are still more than 50% below pre-virus levels, according to analysis by Bloomberg NEF.”

It will be tempting, in the United States, to see a light at the end of the tunnel and open the shale fields back up in an effort to revitalize the economy, but this would be premature and short-sighted. The positive effects of reductions in oil production are just now starting to kick in and need to be prolonged.

“But we are still a long way from seeing much relief for crude producers and they need to continue exercising restraint,” says Lee. “The real risk may be that when all the financial pain of output cuts — and the human cost of job losses — starts to pay off with higher oil prices, producers take it as a signal to restart the pumps, as if the whole oversupply problem got solved overnight. The output restraint has to last long enough not only for supply and demand to be brought back into line, but for stockpiles to be brought back down again.”

What’s more, the United States is not Saudi Arabia. Without the authoritarian power that many petro-nations have, the decentralized, privatized leadership in the U.S. the oil industry means that the country can’t stop and start pumping on a dime.

This means that the U.S. has to be extra cautious about making any serious changes to current oil production patterns because the ship can be slow and difficult to right.