Update (1320ET): Unsurprisingly, the White House has rebutted the NYT report – which claimed that these projections represented ‘current conditions on the ground, so to speak – saying it doesn’t reflect current projections.
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Less than 12 hours after we predicted the news media would lose its mind over President Trump’s uttering a new “projected” death toll during a briefing with reporters Sunday evening. For the first time, Trump said he expects up to 100k deaths from the coronavirus outbreak, which is higher than figures he’s quoted in the past.
There’s no debate that the pace of deaths has slowed in the US in recent weeks.
Yet, as Florida allows some businesses to reopen (albeit with strictly limited capacity) on Monday, the NYT has published “internal projections” from the CDC calling for average daily US deaths to accelerate to 3,000 a day by June 1. However, most of the hardest hit states are seeing cases and deaths decline, while some states are seeing a slight acceleration. Overall US mortality has plateaued. According to the CDC’s own coronavirus weekly summary, “nationally, levels of influenza-like illness (ILI) declined again this week. They have been below the national baseline for two weeks but remain elevated in the northeastern and northwestern part of the country. Levels of laboratory confirmed SARS-CoV-2 activity remained similar or decreased compared to last week.”
The NYT reported that the White House continues to expect up to 3,000 deaths a day in June while Trump continues to ‘press’ for states to reopen.
The report also claimed the projections “confirm” public health experts “primary fear” that a premature reopening will instigate a rebound putting us right back where we were in March.
As President Trump presses for states to reopen their economies, his administration is privately projecting a steady rise in the number of cases and deaths from coronavirus over the next several weeks, reaching about 3,000 daily deaths on June 1, according to an internal document obtained by The New York Times, nearly double from the current level of about 1,750.
The projections, based on modeling by the Centers for Disease Control and Prevention and pulled together in chart form by the Federal Emergency Management Agency, forecast about 200,000 new cases each day by the end of the month, up from about 25,000 cases now.
The numbers underscore a sobering reality: While the United States has been hunkered down for the past seven weeks, not much has changed. And the reopening to the economy will make matters worse.
“There remains a large number of counties whose burden continues to grow,” the C.D.C. warned.
The projections confirm the primary fear of public health experts: that a reopening of the economy will put the nation right back where it was in mid-March, when cases were rising so rapidly in some parts of the country that patients were dying on gurneys in hospital hallways as the health care system grew overloaded.
Notice the language the NYT has used: Characterizing the situation in the US by saying “not much has changed” simply doesn’t jive with the data, or with the lived experience of millions of Americans who took to public spaces and parks over the weekend to enjoy the good weather and sunshine.
Trump smartly stopped egging on protesters and pushing states to reopen before federal guidelines say it’s acceptable. But at this point, the notion that these projections represent anything more than a “worst case” scenario for the CDC seems far-fetched.
We detailed before that in late February Saudi authorities made the historically unprecedented to move to shut down the Islamic pilgrimage to Mecca due to the coronavirus pandemic. At the time they further suspended entry visas for pilgrim’s wishing to visit the kingdom’s holy sites.
By far the largest annual gathering of humans in the world is the pilgrimage to Mecca, which in 2018 alone saw about 2.4 million Muslims make the religious trip. Perhaps it was too late even by that point? A new report in Middle East Eye suggests nearly 70% of Mecca, or more than two million residents, has the virus based on recent rounds of broad testing, also amid the growing threat to the Saudi Royal family:
According to three senior Saudi medical sources, nearly 70 percent of Mecca’s more than two million residents are estimated to be carriers of the virus, according to recent random testing conducted in the holy city.
Saudi Arabia has so far recorded 21,402 cases and 157 deaths from Covid-19. These are the highest numbers in the six-member Gulf Cooperation Council (GCC).
“The actual spread of the disease could be three to four times higher than the declared one,” an anonymous medical official was quoted as saying in the report. “Saudi health authorities expect the peak to be sometime in June.”
A month ago the kingdom tightened restrictions further in key cities, including the imposition of a strict 24-hour curfew on the pilgrimage cities of Mecca and Medina. This after a country-wide lockdown was issued starting March 25.
Since then hospitals have reportedly become “overwhelmed” according to several international reports.
The alarming report also comes on the heels of recent New York Times reporting which said some 150 members of the royal family are being treated for COVID-19 at elite units of regional hospitals set up for that purpose.
But this week Prince Turki bin Faisal al-Saud, a Saudi royal and former intelligence chief, downplayed the NYT report in the Saudi newspaper Al-Sharq Al-Awsat.
“The truth is that only less than 20 members of the al-Saud family have been infected, and the hospital has not been allocated for them. The hospital treats all citizens and residents,” Prince Turki wrote.
The data below reflects the findings of a national survey of 3,500 American adults conducted by Azurite Consulting, a tech-enabled consulting firm that uses unique methodologies, on behalf of Peak Prosperity to reveal the specific changes in behavior and sentiment triggered by the coronavirus in US households and businesses. This online survey of the PeakProsperity.com audience was conducted April 17-24, 2020, and is subject to a +/- 1.7 percentage point margin of error at the 95 percent confidence level.
‘All-American Impact Survey’ Three Key Findings
Beyond the high cost in human life already suffered, much of American society — perhaps even the future of the Presidency itself — has fallen victim to the the microscopic covid-19 virus.
So much damage has been done to job security, social norms, and voter trust that it will be years before life returns to the way it was before, if ever. Many of the changes forced on us by the pandemic are looking to be permanent.
#1: Covid-19 Is An Existential Threat To Businesses & Jobs
Despite quick and widespread layoffs and furloughs to cut costs, many companies fear they may not survive much longer. And those that do, don’t plan to hire back the same number of workers they’ve let go:
Half (49%) of all Americans report a loss income, partial or total, attributed to covid-19
If social distancing lasts until October, more than a third (36%) of US SMBs don’t believe they will survive
After the US emerges from covid-19, 70% of American c-suite executives and SMB owners plan to hire fewer employees back to perform the same work. Only 4% currently plan to hire more people than before.
#2: Covid-19 Is Pinching Budgets, Reducing Savings & Spoiling Retirement
The loss of income and reduced job security caused by the coronavirus, combined with the related recent stock market volatility, are making US households more financially insecure:
19% of Americans are having to dip into their savings accounts to cover normal monthly expenses due to the impact of covid-19
18% of retirees are considering having to return to the workforce to bolster their retirement savings
In order to make ends meet, households are cutting back on expenses. 62% of Americans have increased their home cooking and 36% are buying less “indulgent” foods. 39% have postponed larger household purchases (TVs, cars, designer clothing, home improvement, etc)
#3: Covid-19 Has Resulted In So Much Loss Of Voter Trust That It May Cost President Trump The 2020 Election
The majority of the voting public is dissatisfied with the federal government’s response to the pandemic, much more so compared to state and local levels. President Trump’s performance specifically receives the worst ratings of all, and that’s influencing a material percentage of voters in the 2020 swing states to decline to vote for him:
73% say they now trust the Federal government less since the covid-19 outbreak. This loss of trust is much more severe than that reported for state (41%) and local (30%) governments.
58% of all voters report themselves as dissatisfied with President Trump’s performance. 44% report themselves as “extremely dissatisfied” (0 or 1 on a 10 point scale)
Only 73% of 2016 Trump voters in the 2020 swing states are willing to say they’ll vote for him again. More than half of the remaining 27% plan to vote for another candidate or not at all.
“Four months ago, the world was unaware of covid-19,” notes Adam Taggart, president and co-founder of Peak Prosperity.
“Now the pandemic is directing nearly every decision we make while clouding our personal, professional and national prospects with an ongoing uncertainty. That’s why accurate insights of the kind Azurite has helped us obtain through this survey are so important to households and businesses right now. Without good data, how will we collectively navigate well through this challenging time in history?”
“To date, there has been a pronounced lack of statistically sound data on how Covid-19 continues to swiftly alter the world around us.” says Eli Diament, founder of Azurite Consulting. “Azurite is excited to partner with Peak Prosperity to produce one of the first studies of this scale and rigor, to help households, business leaders, the media and policymakers utilize reliable data to underpin their decision making
Further insights from the All-American Impact survey are presented below.
In addition to the insights above, the survey reveals that Americans are being forced by covid-19 to adopt more cautious behavior that will handicap economic recovery and likely strain social unity.
That said, life under lockdown isn’t all bad news.
Personal Life In The Age Of Covid-19: Caution Is King
It will take a long time for American life to return to “normal”, as people plan to refrain from many common activities for months (at least) after the lockdown is lifted, and in a number of cases, even after a vaccine is widely available:
Dining out: 53% won’t be comfortable going to a sit-down restaurant for at least 3 months after social distancing ends. 38% will wait at least 5 months. 24% won’t dine out until there’s a vaccine. 15% will wait 3 or months after a vaccine.
Gyms: 57% of gym-goers will wait 3+ months before returning after social distancing ends
Sporting event: 44% won’t attend a live game until a vaccine is issued, 63% of these people will wait at least another 3 months after the vaccine is out to attend
Travel: Air: 36% who took at least 1 international flight in 2019 will not fly internationally again until a vaccine is available
Travel: Cruise Ship: 22% of avid cruise goers say they’ll never take a cruise again. 65% will wait at least until there’s a vaccine. 55% of those waiting will delay their next cruise until at least 1 year after the vaccine is out.
Casinos: 45% don’t plan to go until a vaccine is available. 35% of these people will wait at least 6 months after vaccine release before going back.
And even once a covid-19 vaccine becomes available, Americans will not rush to get it:
Fear of becoming infected is pushing us towards becoming a divided nation. About half of Americans believes themselves to be at higher risk (due to age and/or pre-existing condition). As a result, they take the covid-19 threat substantially more seriously, and may increasingly clash with what they see as “reckless” behavior by others as lockdowns are lifted and social activity resumes:
Those who consider themselves “At Risk” (AR) are substantially more critical than those who consider themselves “Not At Risk” (NAR) of the speed (73% AR vs 56% NAR) and forcefulness (64% AR vs 48% NAR) of the governments covid-19 response.
At Risk respondents are half as likely to eat out (19% AR vs 44% NAR) or shop in stores (11% AR vs 28% NAR) three times less likely to fly (6% AR vs 21% NAR) after social distancing ends
At Risk respondent will wait TWICE as long to do ANYTHING (go to a movie theatre, house of worship, sporting event, etc) after a vaccine becomes available than NARs
On the home front, frazzled parents have had to determine on-the-fly how best to bend, break or completely re-draw home rules during this age of forced lockdown:
49% of American parents have relaxed TV watching rules
~40% have purchased games & activities to occupy their kid’s attention
39% are encouraging additional online education
27% are alternating working hours with their spouse in order to engage with their children. 18% are simply working fewer hours in order to be able to do so.
Given the sharp market drop and subsequent damage to the economy covid-19 has caused, Americans are now more likely to invest less in “paper” assets (stocks, bonds, Treasuries) and more in hard assets
Stressed out households are seeking comfort in cannabis, Consumption is increasing among marijuana smokers in lower-income households
Marijuana smokers earning <$100k are 50% more likely to have increased cannabis consumption. They are also 2x more likely to have been laid off or furloughed from the impacts of covid-19.
It’s not all fear, anxiety and struggle, though. On the more positive side, despite the uncertainty we’re all living under, the common adversary we face in the coronavirus is creating social solidarity:
29% of Americans have, for the first time, purchased or shared groceries and other essential supplies with/for their neighbors
36% of Americans report acting more friendly now to strangers
Business: Covid-19 Is Accelerating The Transition To A Remote Workforce
The digital collaboration tools (video conferencing, team communication/collaboration software, etc) being adopted during this forced ‘work from home’ period is accelerating permanent changes in the way American companies operate
Nearly half (48%) report that 50% or more of their company’s employees are currently working from home
80% expect these newly-adopted tools to be used permanently by their business going forward
83% agree or strongly agree that these tools will result in greater flexibility to work from home after covid-19
Working from home has resulted in gains in personal satisfaction and career introspection among managers & employees:
Nearly half (48%) of American managers report a better work/life balance now
36% of American employees report better work/life balance
57% of American corporate managers say they are going to prioritize job meaning (vs money) more highly for their next professional role
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PeakProsperity.com publishes analysis on the macro trends most likely to impact our future and helps individuals prepare prudently for them. Its website receives over one million visits per month and over 350,000 subscribers follow its daily video reports on YouTube.
Azurite Consulting is the leading provider of unique primary research to private equity firms, hedge funds, and large enterprises. Azurite’s unique methodologies provide our clients with original primary research they can trust, allowing them to make their most critical decisions with the highest degree of conviction.
Chinese company Da Jiang Innovations, the world’s largest maker of drones, has donated drones to 43 law enforcement agencies operating in 22 U.S. states to enforce social distancing rules.
Police in Elizabeth, N.J., for example, are using the drones to surveil residents in places where patrol cars can’t easily reach, such as spaces between buildings and back yards.
“If these drones save one life, it is clearly worth the activity and the information that the drones are sending,” Elizabeth mayor Chris Bollwage told MSNBC.
In 2017, the U.S. Department of Homeland Security warned in a memo that DJI was “selectively targeting government and privately owned entities within these sectors to expand its ability to collect and exploit sensitive U.S. data.”
The Interior Department in 2019 grounded its entire fleet of DJI-manufactured drones, which had been used to surveil U.S. land, due to concerns that China was using the drones to gather data on critical U.S. infrastructure.
DJI has asserted that concerns about its drones are groundless.
“There are people who don’t like China but they are trying to score ideological points by trying to dicourage the use of equipment and important tools that save lives,” DJI spokesman Alex Lisberg told Fox News in response to allegations of spying.
Chinese authorities have deployed drones to police citizens breaking lockdown rules during the coronavirus pandemic. Footage gathered from police UAV’s shows the drones, operated by police on the ground, warning residents by loudspeaker to return to their homes. Residents of China have faced sweeping lockdowns in response to the coronavirus, with reports of authorities locking some citizens in their homes for quarantine.
More than 125 years ago, the American financial press emerged from the primordial ooze with a simple mission: To help even the playing field between retail investors and professionals. The theory was that by lessening the ‘informational asymmetry’ that gave insiders an insurmountable edge over retail investors (or at least creating the illusion of a kind of informational equality), more workers would feel comfortable plunking their savings in the public securities markets. The financial press developed in tandem with securities regulators and – of course – the Fed, and has for years been part of the Wall Street firmament.
But unfortunately, nowadays, financial media organizations like CNBC mostly exist to serve their corporate masters (NBCUniversal in CNBC’s case) with an unceasingly bullish tilt, pumping markets with a never-ending barrage of ‘commentary’ from strategist/pitchmen, and offering little in the way of deeply researched reporting, other than the occasional scoop. We think that’s why our coverage of a particularly heated interview involving CNBC’s Scott “The Judge” Wapner, and Silicon Valley VC Chamath Palihapitiya, elicited such an intense reaction.
In a now-famous clip, Wapner, stunned by Palihapitiya’s assertion that the government shouldn’t bail out the airlines, demanded an
In an extremely worrisome development signaling the coronavirus peak in the United States could last longer than expected, the US Navy has found that most COVID-19 cases aboard the virus-stricken aircraft carrier Theodore Roosevelt are among sailors who are asymptomatic.
“Sweeping testing of the entire crew of the coronavirus-stricken U.S. aircraft carrier Theodore Roosevelt may have revealed a clue about the pandemic: The majority of the positive cases so far are among sailors who are asymptomatic, officials say,” Reuters reports.
This suggests the virus could be spreading more frequently by stealth mode in the broader population, with many more people than is known walking around walking around with the disease unawares.
At least 655 Roosevelt sailors have now tested positive, including one death and multiple hospitalizations, out of a total crew of a about 4,800. It’s startling that the Navy has found that out of over 600 COVID-19 infected sailors, the majority have displayed no symptoms. Testing is about 95% complete on the entire crew since the ship was diverted to Guam last month amid a spiraling crisis on board.
“With regard to COVID-19, we’re learning that stealth in the form of asymptomatic transmission is this adversary’s secret power,” Rear Admiral Bruce Gillingham, surgeon general of the Navy, told reporters.
The Navy specified that 60% of the Roosevelt’s positive cases “so far have not shown symptoms”. Crucially, Reuters points out that the“figure is higher than the 25% to 50% range offered on April 5 by Dr. Anthony Fauci”.
This is likely due the fact that enlisted military ranks tend to be already very healthy individuals in their 20’s and early 30’s. The carrier crew also provides a key active case study given the isolation of nearly 5,000 people apart from broader society, and the young, fit demographic.
Defense Secretary Mark Esper told NBC’s Today on Thursday that the conclusions regarding asymptomatic spread aboard the ship conclusions are “disconcerting”. Esper said, “It has revealed a new dynamic of this virus: that it can be carried by normal, healthy people who have no idea whatsoever that they are carrying it,” Esper said.
While this is not a new revelation, the case of the Roosevelt carrier and its crew provides shocking and clear confirmation that this reality is likely playing out on a much broader scale than previously thought.
So, the question is – just how ‘manufactured’ will this smorgasbord of Chinese macro data be? As v-shaped as the incredible ‘survey’ data? Or as realistic as the traffic and pollution numbers suggest?
The red oval is the ChiNext stock index’s reaction to the worst of China’s virus impact… green is PMI and red is the macro surprise index (which will be smashed one way or the other tonight)…
Of course the big one tonight is Chinese GDP growth. The median forecast of economists surveyed by Bloomberg was for a 6% contraction in the first three months of the year, when the coronavirus outbreak forced an unprecedented lockdown of factories, stores and schools across the country (ING Bank saw a +3.6% print and at the other end of the spectrum, Capital Economics forecast a 16.0% contraction in GDP).
“China’s economy is going to recover only gradually,” said Scott Kennedy, senior adviser and trustee chair in Chinese business and economics at the Center for Strategic & International Studies.
“If the government over-stimulates, the only result will be a lot of wasted spending and greater debt. And that won’t help resolve the core problem of China’s economy: low productivity.”
Additionally, the government will also release data for retail sales, fixed asset investment and industrial output for March, offering the most complete picture yet of the economic destruction since the virus outbreak (but we have already seen the collapse in this monthly data for February and expectations are for a rebound or slowdown in the collapse).
And so here we go… the magic number for tonight is… a miss – Chinese GDP shrank by 6.8% from a year ago (considerably worse than the 6.0% drop expected) and the worst drop on record (since 1992)
As Bloomberg notes, the sharp contraction underscores the pressure that Chinese policy makers face as they attempt to revive the economy without nullifying efforts to contain the virus. The continued spread around the world also threatens to add fresh downward pressure on China’s exporters in a feedback loop that could throw millions out of work.
“The economic loss is unprecedented,” Pacific Investment Management Co. economists wrote.
“The global recession will hit exports primarily in the second and third quarters of 2020, domestic demand is still hampered by quarantine curbs, and stimulus transmission is weak amid spreading bankruptcies and job losses.”
And the rest of the Chinese data improved marginally but:
Industrial Production fell 8.4% YTD YoY (better than -10.0% exp)
Retail Sales fell 19.0% YTD YoY (worse than -12.5% exp)
As Bloomberg’s Asia Economy Team Manager, Malcolm Scott notes, the March numbers probably tell us a bit about human psychology as well as economics — you can turn factories back on and rev up production lines, but it’s tougher to restore consumer confidence that’s been so badly shaken. And while the consumer plays a larger role in China’s economy today than in the past, it’s nothing like the contribution in most advanced economies. That could be a bad precedent globally.
Finally, International Monetary Fund Chief Economist Gita Gopinath said in an online media briefing on Tuesday that the fund is tipping 1.2% growth for China this year.
“The rest of the global economy is now in the grips of the pandemic and there are severe containment measures around the world so that would have a big negative impact in terms of external demand on China’s growth.”
However, “until there is a usable vaccine, it is tough to see life getting anything like being back to vague normality,” warned Jim O’Neill, Chair of Chatham House and the former Goldman Sachs Group Inc. chief economist who coined the term BRIC.
And for those craving the next stimulus move by Chinese officials, Shang-Jin Wei, a China expert at Columbia Business School in New York and formerly chief economist of the Asian Development Bank, warns: “Prevention of a return or the ‘second wave’ of the virus outbreak is more important than getting a high growth rate for the remainder of the year.”
While some companies may be wasting time asking for rent concessions as a result of the coronavirus lockdown, Tesla, which is now valued at about $130 billion as of Tuesday morning’s trading, is telling its landlords its going to be paying less in rent.
The company sent out an e-mail to landlords as part of a broader push to find cost savings during the coronavirus lockdown, according to the Wall Street Journal. In it, they unilaterally decided they would be paying less in rent.
The e-mail read: “The rapid world pandemic that is now affecting our country has led Tesla to make strategic decisions to ensure the company’s long term success and growth. As a result of the increasing restrictions on our ability to conduct business, we would like to inform you that we will be reducing our monthly rent obligations effective immediately.”
The company, after unilaterally deciding rent concessions were in order, then said it hopes it can discuss options with its landlords in the days and weeks to come “so we can continue to partner and work together to ensure a continued and mutually beneficial relationship.”
The demand by Tesla raised some eyebrows on social media:
Recall, just two days ago, we reported that Tesla had furloughed 50% of its sales and delivery team in the U.S.
The company announced on Friday that about half of the company’s entire U.S. sales and delivery staff would be affected.
Workers in sales and deliveries were furloughed by their rank and their tenure, not on the basis of their performance. Anyone with entry-level roles or lower sales quotas each quarter have all been furloughed, according to sources at Tesla. Employees in senior sales and delivery roles who have been with the company for less than two years have also been furloughed.
One furloughed employee worried that permanent layoffs could be next as a way for Tesla to continue cost cutting that began in 2019.
Tesla had suspended production at Fremont and in New York on March 24. The Fremont suspension came after a spat with the Alameda County Sheriff’s department about whether or not Tesla was an “essential” business. It also came 8 days after Musk told his workers they were “more likely to die in a car crash” than from coronavirus.
Two days after Tesla’s delayed close, on March 26, it was reported that two Tesla employees had tested positive for coronavirus.
According to an email sent to U.S. employees by in-house counsel Valerie Capers Workman, workers pay is going to be cut 10%, directors will have their salaries cut by 20% and VP salaries will be cut by 30%, the company said.
Tesla said that pay for salaried employees would be reduced on April 13 and that cuts would remain in place until the end of the second quarter, despite the company’s plans to re-open in early May.
The World Trade Organization (WTO) published a new report on Wednesday that is truly apocalyptic, and crushes all hopes that a V-shaped recovery would be seen this year (similar to what Morgan Stanley said last week):
“World trade is expected to fall by between 13% and 32% in 2020 as the COVID 19 pandemic disrupts normal economic activity and life around the world,” the WTO report said.
The Geneva-based body does not see a recovery in global trade until 2021, and even then, the outcome of recovery is mainly dependent “on the duration of the outbreak and the effectiveness of the policy responses.” The economic recovery could be anywhere from 21% and 24%.
“This crisis is first and foremost a health crisis which has forced governments to take unprecedented measures to protect people’s lives,” WTO Director-General Roberto Azevêdo said.
“The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself.”
“The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies and countries. But policymakers must start planning for the aftermath of the pandemic,” he said.
“These numbers are ugly – there is no getting around that. But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects. We need to lay the foundations for a strong, sustained and socially inclusive recovery. Trade will be an important ingredient here, along with fiscal and monetary policy. Keeping markets open and predictable, as well as fostering a more generally favourable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone.”
Shown in the chart below, the WTO has modeled three scenarios of world trade through 2022 against a trendline from 1990-2008 and a trend line from 2011-2018. Notice the giant gap forming verses both trend lines as the global economy is undoubtedly in trouble.
WTO said world trade was already slowing before the virus outbreak, mainly because of the trade war.
“Trade was already slowing in 2019 before the virus struck, weighed down by trade tensions and slowing economic growth. World merchandise trade registered a slight decline for the year of ‑0.1% in volume terms after rising by 2.9% in the previous year. Meanwhile, the dollar value of world merchandise exports in 2019 fell by 3% to US$ 18.89 trillion.”
Chart 2: Ratio of world merchandise trade growth to world GDP growth, 1990‑2020 (% change and ratio)
Chart 3: New export orders from purchasing managers indices, Jan. 2008 – Mar. 2020 (Index, base=50)
Chart 4: World merchandise exports and imports, 2015Q1‑2019Q4 (Index 2015Q1=100 and year‑on‑year % change)
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.