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Do Oil Market Fundamentals Justify $40 WTI – OilPrice.com

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Do Oil Market Fundamentals Justify $40 WTI? | OilPrice.com

Osama Rizvi

Osama is a business graduate and a student of international relations. Currently working as freelance journalist, covering commodities and geopolitics.Osama is a regular contributor to a variety…

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    Oil prices have been locked in the current price range for months now, with price volatility dropping drastically. It seemed that only inventory reports, OPEC’s compliance rate, and the re-opening of various European countries such as Spain and Italy could trigger price movement. But the current price cannot be justified if we refer to fundamentals alone. It is clear that the draws from inventories that we are seeing aren’t driven by genuine demand. China’s buying spree appears to be slowing down in September after the country has stocked up on cheap crude during the summer months. 

    Source: https://www.macrotrends.net/2480/brent-crude-oil-prices-10-year-daily-chart

    The recent optimism in the markets is an example of the phenomenon Andrei Shleifer and Nicola Gennaioli outline in their book, A Crisis of Beliefs, in which good news is over-represented while tail risks are largely ignored. Then, when those tail risks surface, there is a crisis or a crash. We may soon see a similar situation unfolding in oil markets. That there is no sustainable demand recovery in the U.S., Eurozone, or Asia should be a worrying fact for oil market analysts. A Second COVID-19 wave would only make matters worse and the threat of an escalation in the trade war between China and the U.S. is another near-term risk to consider for oil markets. 

    Rystad Energy estimates that another wave of COVID-19 would once again halt the recovery of oil demand. If countries around the world experience a second round of lockdowns, then about 3.7 mbpd of demand for oil could be lost. The case for jet fuel is even worse, as international travel is not expected to recover to pre-COVID levels any time soon. 

    The unwinding of OPEC+ production cuts will only add to the market glut, with Rystad forecasting a total surplus of 170 million oil barrels being created between August and November.  Related: Gold Could Be Heading To $5,000

    The Monthly Oil Market Report from OPEC states “The demand for oil is estimated to see significant y-o-y developments; however it will remain far below pre-COVID-19 levels”. It goes on to state that the outlook for recovery remains uncertain. All of this is apparent when looking at climbing global unemployment levels, falling consumer spending, and a wave of small and medium businesses going bust. With all of this data, it is important not to confuse improvement or positive sentiment with a return to ‘normal. 

    The recovery in global trade is also slowing down as the graph above illustrates. Meanwhile, there is a plateauing in the activity of emerging markets. 

    Chart by Primary Vision Network

    We recently saw prices fall below $40 for the first time since June as the above demand fears began to weigh on oil markets and the summer driving season disappointed. As these demand factors gain more attention, it should be apparent that the current price range cannot be justified by oil market fundamentals. 

    Slowing economic activity around the world, restricted mobility, and fears of another trade war are just a few of the key factors that will continue to weigh on oil prices and could cause a significant move to the downside. 

    By Osama Rizvi for Oilprice.com

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      Moderna Coronavirus Vaccine Won't Be Available Before Election Day, CEO Says – The Motley Fool

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      Dealing a blow to President Trump’s hope to have a vaccine before Election Day, Moderna‘s (NASDAQ:MRNA) CEO said the company’s coronavirus vaccine won’t be ready by Nov. 3.

      Speaking at a Financial Times-organized biotech and pharmaceutical conference, Stephane Bancel said that “November 25 is the time we will have enough safety data to be able to put into an EUA [Emergency Use Authorization] file that we would send to the FDA — assuming that the safety data is good, i.e., a vaccine is deemed to be safe.”

      Image source: Getty Images.

      An Emergency Use Authorization is fast-track, limited approval the FDA grants for medications or vaccines that can treat or prevent diseases that post a significant enough threat to the population. 

      Moderna has leapt to prominence with its MRNA-1273, considered one of the leading coronavirus vaccine candidates, if not the overall leader. It has done extremely well in early stage testing and is currently undergoing a phase 3 clinical trial.

      On the hope that it would boost his popularity in the run-up to the election, Trump has promoted the idea that a safe and effective vaccine will be on the market in the very near future. A great many public health experts and pundits say that will happen next year at the earliest, however.

      While biotech and pharmaceutical companies are developing a host of vaccine candidates, none has yet finished its clinical testing, and no major regulatory authority has approved any of them.

      Investors didn’t react too strongly to Bancel’s pronouncement, as it’s likely few of them were expecting MRNA-1273 to finish testing and win approval over the next couple of weeks. The company’s shares inched up on Wednesday, not quite reaching the S&P 500 Index’s gain on the day. 

       

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      Americans got richer than ever during the pandemic, but Canadians haven’t followed suit

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      The reason for the apparent paradox, experts suggest, has more to do with economics than the epidemic itself.

      Part of the explanation is the drag of Canadian consumer debt, which began the quarter at 164 per cent of household income, about 30 per cent higher than the comparable debt level in the U.S., he said.

      In the second quarter, the ratio in Canada decreased to 146.4 per cent.

      Canadians, typically conservative, spent less during lockdown, choosing instead to pay down their debts, said Peter Miron, senior vice-president of Environics Analytics Group in Toronto.

      “People in Canada were paying off their plastic for lack of opportunity to buy things,” Miron noted, adding that many were also building their savings as a precautionary measure.

      People in Canada were paying off their plastic for lack of opportunity to buy things

      Peter Miron

      That’s part of the reason why Canada’s recovery from the bottom of the virus-driven recession has been less dramatic than that in the U.S.

      While U.S GDP is expected to produce an overall decline of 4.0 per cent this year, comparable Canadian data shows a 5.6 per cent expected GDP contraction, TD Economics found in a Sept. 18 analysis. That is reflected in the difference in unemployment rates forecast by TD’s economics unit:  8.5 per cent in the U.S. vs. 9.7 per cent for Canada.

      Benjamin Tal, deputy chief economist for CIBC in Toronto, notes that government support programs in both Canada and the U.S. provided more income to households than was lost in the epidemic and market meltdown.

      Source: – Financial Post

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      Canadian security firm Garda goes hostile in $5.2B bid for British company G4S – CBC.ca

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      Garda World Security Corp. is making a hostile play for G4S after the British security company spurned its $5.2 billion US offer two weeks ago.

      The Montreal-based company appealed directly to G4S shareholders by criticizing the firm’s directors and accusing them of acting in a “cavalier manner” by rejecting several approaches in recent months.

      GardaWorld founder, president and CEO Stephane Cretier says that G4S faces profound difficulties and needs an owner and operator that understands the industry and has a well-defined plan.

      The reputation of the GS4 has been damaged in recent years, especially for the lack of agents during the 2012 London Olympics to assure security.

      Through its subsidiary Fleming Capital Securities, GardaWorld offered 190 pence for each share of the British company. On the London Stock Exchange, G4S shares gained 5.9 per cent at 200.30 pence in Wednesday trading.

      GardaWorld unveiled the terms of its proposal on Sept. 14 in an attempt to force the hand of the British company, which has described the move as “highly opportunistic.”

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