However, resistance to life returning to normal continues: File Image/PixaBay
Even though it is easing coronavirus containment measures and reopening for business, data on Friday showed that China‘s GDP shrank 6.8 percent year on year in the first three months of 2020 due to the virus – and this in turn caused more mixed trading for the commodity.
The reaction was curious in light of reports that as China’s economy emerges form the virus-driven slump, its refiners are snapping up low-price oil from all over the world, including the U.S. and Canada.
West Texas Intermediate on Friday fell 39 cents to $25.14 per barrel, while Brent rose 44 cents to $28.26 per barrel; however, the losses were mitigated somewhat by emerging optimism that the U.S. economy will improve due to president Donald Trump‘s new guidelines on easing virus lockdown measures in a three-stage approach.
The market will see meaningful cuts….without the need for mandated cuts
Han Tan, market analyst at FXTM, echoed this emerging sentiment by remarking, “If more of the global economy enacts plans to reopen and restores some sense of normality, that could help oil prices find a firmer floor in May, aided by the OPEC+ supply cuts kicking in.”
He was referring to the Organization of the Petroleum Exporting Countries and partners agreeing to nearly 10 million barrels per day (bpd) of production cuts to help offset collapsed demand due to worldwide virus lockdown measures.
Also, individual producers such as ConocoPhillips have agreed to reduced planned North American output, and this caused ING bank to state in a note on Friday that “This highlights that the market will see meaningful cuts from outside the OPEC+ group without the need for mandated cuts.”
Meanwhile, Russia on Friday praised the U.S. for reacting to Mexico‘s refusal to cut 400,000 bpd of output (it instead agreed to a paltry 100,000 bpd) by helping to make up the shortfall.
As for what happens next to the oil market, John Kemp, commodities analyst for Reuters, noted that it depended entirely on how long the recessionary hit due to the lockdowns will last: “Some businesses will re-open and return to near-normal rapidly once the lockdown ends, but others will operate at severely reduced capacity, and some will not re-open at all…..millions of employees have been furloughed and could return to their old jobs quickly, but millions more have become unemployed and may not find new work for some time.”
A number of European countries, including former virus hot spot Italy, have eased their virus restrictions, and 22 states in the U.S. are soon expected to follow suit under the White House guidelines; some states such as Texas have already begun easement, and some Florida beaches were reopened on Friday.
Politicians resistant to re-opening are being faced with an increasingly hostile populace struggling to make ends meet: such was the case in Minnesota on Friday, where hundreds of demonstrators took their stay-at-home protests to the governor’s residence.
The protests, which started in North Carolina and Michigan, have now spread to New York, Ohio, Virginia and Kentucky, with more slated for the coming days – much to the dismay of media pundits such as Nancy Kaffer, who on Friday complained that pandemic response should be based on medical consensus, not “financial interests.”