Crude Carnage, China ‘On Track’ And ‘When Does The Pub Open Again?’

Global equities were generally buoyant Monday, kicking off a pivotal week with gains despite a steep plunge in crude and lingering concerns about the prospect of a contested election result in the US.

Oil dove as much as 6% at one point to a five-month low, before trimming losses. Clearly, one issue is on the demand side. A new lockdown in England announced over the weekend exacerbated worries of a double-dip recession across Europe and stoked fears that a similar fate could befall other developed economies should they too experience uncontrolled outbreaks. In that scenario, Trafigura warned oil demand could drop again after attempting a recovery from April’s shock.

Meanwhile, in Libya, production is coming back online faster than expected, reaching 800,000 barrels per day. The country is gunning for 1.3 million by the turn of the year. Consider that less than two months ago, the figure was just 100,000.

Vitol is more optimistic, calling this latest double whammy setback a mere “speed bump.” I’m not so sure. “There are two primary drivers of price action and a laundry list of secondary ones,” AxiCorp’s Stephen Innes said Monday. “Firstly the resumption of lockdowns across Europe calls into question the strength of demand going forward. Secondly, the market has also been caught off guard by the extent to which Libyan supply has come back online.”

The ruble slumped through 80 to the weakest since March. That’s likely to get worse in a Joe Biden win or, alternatively, improve in a Trump victory, strategists reckon.

When it comes to crude, Vitol’s optimism is down to the notion that the world is still in “stock-drawing mode.” Bloomberg says that characterization is “backed up by figures from India over the weekend, where diesel sales grew for the first time in eight months… while figures from China showed [ongoing manufacturing] expansion, indicating Asian demand growth continues to outpace the rest of the world.”

PMI data out of Beijing showed the official manufacturing PMI printing 51.4, down just a tick from September. The Caixin gauge hit 53.6 in October, data out Monday showed. That’s the strongest since January of 2011.

You know the narrative here — something about “the latest data adds to a growing list of evidence that the world’s second largest economy remains on track to cement a quick recovery from the pandemic, even as external demand concerns tied to new lockdowns abroad could weigh on exports going forward.” (You can write this boilerplate copy in your sleep.)

Meanwhile, Brexit negotiations are apparently on the brink of a breakthrough, but chatter about lockdowns lasting longer than a month (considering the severity of the COVID situation) will continue to cast a pall over things.

There are, of course, large numbers of people who aren’t enamored with the containment protocols. Rabobank’s Michael Every delivered the cynical take on Monday. “All of this is being ‘guided by the science,’ yet as a growing number of critics point out, this science seems to be unable to spot that partially locking down cripples large parts of the economy, but merely resets the virus clock,” he wrote.

“As soon as the lockdown measures are scaled back, the outbreak starts all over again. Q4 is a write-off, like Q2; we will likely see a reopening for Christmas; and then lockdown again around Easter,” Every mused, before posing these questions (among others): “How are businesses supposed to survive this? What is the actual plan, beyond hopes the vaccine works? When does the pub open again?”

That latter query (about the pub) would have been the only question I was interested in had the pandemic hit five years ago. Of course, in the US, we call them “bars.” And, really, it would have been fine. Because liquor stores stateside were deemed “essential businesses” in some locales.