OPEC plus is going to rollback cuts and add 1.5 million barrels of oil to the global oil market starting August 1. When OPEC Plus decided to raise output early last month, it looked as if the market was going to need those extra barrels. Yet now with more uncertainty about a second wave of the coronavirus and a devastating weekly jobs reports, a historically wrong U.S. GDP number, perhaps at this time, a production increase might not be a great idea.

The oil curve in Brent has slipped from backwardation into contango, signaling that the tight market we had in Europe is reversing, and Congress can’t seem to make progress on a new stimulus bill, may give the oil bulls pause. Yet overnight the White House appears to be willing to drop Mitch McConnel Republican demands for a “liability shield” for companies from the fallout from the coronavirus. If embraced by other Republicans, it will be up to the Democrats to give up something to get a deal.

The pressure will be on for both sides of the aisle to make a deal. The U.S. GDP number is one reason after it took a 9.5% hit in the second quarter of 2020 compared with a year ago. That was the biggest quarter-on-quarter and year-on-year drop in economic activity since the Second World War. Yet more importantly was weekly jobless claims number that came in at a higher than expected 1.45 million. That, according to Dow Jones, was the 19th straight week in which initial claims totaled at least 1 million and the second consecutive week in which initial claims rose after declining for 15 consecutive weeks. Each one of those 1.45 million people has a vote in the election, I assume, and they will vote against the party that they believe has added to their economic pain.

Of course, oil and products got hit hard on the GDP and jobs data and news that Iraq oil exports went higher but there is economic optimism by blowout Amazon earnings. That may suggest that in some parts of the economy things are not quite as bad as those dismal numbers indicate. Besides, The Energy Information Administration (EIA) is showing the most significant crude draw in years, and that is hard to ignore.

Oil got a bit of a bounce on China’s data. Reuters reported that, “China’s manufacturers said another improvement in business activity this month, though still not very widespread. The purchasing managers’ index edged up to 51.1 in July, up from 50.9 in June, and above the 50-point threshold separating expanding activity from a contraction.” So, the data should suggest demand and it will be up to Washington to get their act together to keep things from slipping backward.

To make matters more confusing is the weather outlook in the Atlantic. Fox News reported that the National Hurricane Center declared Isaias a hurricane late Thursday night as it nears the Bahamas after the storm knocked out electricity and drenched Puerto Rico and the Dominican Republic earlier in the day. Hurricane Isaias, according to the latest track, could be a significant energy demand destruction event. Many times people look at hurricanes as production destruction events, but in most cases, the opposite is exact. Yet there are two more tropical disturbances in the Atlantic, one that has a 40% chance of becoming a cyclone in the next 48 hours.

Fox News reported that by late Thursday, Isaias had maximum sustained winds of 80 mph, making it a Category 1 hurricane. “There is a risk of impacts from winds, heavy rainfall, and storm surge along portions of the U.S. East Coast beginning this weekend in Florida and spreading northward to the Carolinas and southern mid-Atlantic states early next week,” an advisory from the center said. The center said on Twitter that data from the Air Force Hurricane Hurricane Hunters indicates that the storm is more potent than before, but its track forecast “is unchanged. Isaias was centered about 70 miles east-southeast of Great Inagua Island in the southeastern Bahamas late Thursday, the U.S. National Hurricane Center said. Isaias was moving northwest at 18 mph, and its center was forecast to move near the southeastern Bahamas during the night, be near the central Bahamas late Friday and move near or over the northwest Bahamas and near South Florida on Saturday. Fox News’ Nick Givas and the Associated Press contributed to this report.
Phil Flynn

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