The Daily Dose

Crude oil prices continue to face pressure from OPEC+ uncertainty and demand destruction. Oil may be in a bear market, though forward-month prices continue to hover around $55 per barrel. On Friday, Russia’s foreign minister seemed to express support for deeper production cuts even as the country’s central bank frets over the persistent global economic slowdown.

Brent crude oil was trading at $54.44 per barrel as of 8 a.m. EST, down some 0.9% from the previous close.

Parties to a joint technical committee for the Organization of Petroleum Exporting Countries recommended additional cuts of some 600,000 barrels per day, about 0.6% of global supply. Brent came under pressure earlier this week after Russia expressed reservations about knee-jerk reactions to the demand pressures from the outbreak of the coronavirus. Cuts, after all, would be jeopardized should Libyan output return to normal.

Speaking in Mexico, Russian Foreign Minister Sergei Lavrov said he supports the idea of deeper cuts, according to the translation from Spanish media. Elsewhere, however, Lavrov was quoted as saying the Kremlin was interested in “optimal measures” that would be “acceptable to all oil exporters.”

A policy move by OPEC+ that would be “acceptable to all oil exporters” may depend in part on economics. Some parties to the agreement need Brent at around $100 per barrel, while others can get by in the current market. Russia, which tends to manage okay in a weaker market, is feeling the constraints from trade pressures and price weakness.

“Risks of a substantial global economic slowdown persist,” a spokesperson for the Russian Central Bank said Friday.

The bank said it expected GDP to grow by as much as 2% this year and as much as 3% by 2022. “However, reduced global economic growth expected over the forecast horizon will continue to exert a constraining impact on growth of the Russian economy,” the statement continued.

Central Bank statements may be more telling than interpretations of Lavrov’s comments from Mexico. OPEC+ may have overplayed its hand in the midst of the coronavirus scare that peaked at the end of January. The production group may need a Goldilocks moment to control the precipitous decline in the price of crude oil. Too much, and economic weakness would be compounded by high oil prices. Too little, and OPEC looks like it lost control. S&P Global Platts reported Friday that OPEC production in January was 470,000 bpd lower than the previous month, though much of that was due to a blockade in Libya. Should ports reopen there, Libyan exports could tip the scales more toward the supply-side, creating headwinds for the price of oil.

In the markets, US jobs surprised on the upside, adding some 225,000 to payrolls in January. Manufacturing, however, showed weakness, with 12,000 lost from sector headcounts last month. Overtime in manufacturing also slowed, showing workers were putting in fewer hours. In Europe, German industrial production for December was down 6.8% year-on-year, coming in far worse than expected.

In political news, tensions between the United States and the Venezuelan government of Nicolas Maduro escalated after police in Caracas detained executives from US refiner Citgo. Their arrests followed the appearance of opposition leader Juan Guiado at President Trump’s annual State of the Union address earlier this week. Elsewhere in Latin America, Russia’s foreign minister said he was looking forward to expanding the economic partnership with Mexico. Already a major player in the region, a bigger Russian footprint in Latin America would be a political coup of sorts.