Welcome to The Geopolitical Energy and Risk Monitoring Report (GERM) by Dan Graeber, a commentary on the intersection between geopolitical events and the price of oil. Our indicator is based on the expected price volatility by the end of the current trading week.
Risk level: Yellow
RED: Severe (+/- 4%) ORANGE: High (+/- 2%) YELLOW: Elevated (+/- 1%) BLUE: Guarded (+/- ½%)
THE BOOSTER SHOT
- The economy in "could be entering a vulnerable period."
- Understand the weight the phrase "US shale."
- Don’t forget things like the market "place" are human inventions.
Crude oil prices are clearly showing a bullish tendency with US sanctions limiting the ability of Iran and Venezuela to export oil. Many other producers are now forced to shuffle obligations to fill the gap. Meanwhile, OPEC leaders continue to stress the importance of discipline for an agreement that boosted oil prices from historic lows. The IEA on Friday said that any additional loss in Venezuelan supply could be severely disruptive, though there was some room for maneuver in the form of spare capacity. Elsewhere, the IEA warned that geopolitics “has added another complication” to the market. This is not the same geopolitics that existed a decade ago. This time, the geopolitical landscape includes surreal elements that have no real equivalent.
There may be something of a disconnect between the actual market and economic conditions, though concerns about the lack of heavier grades of oil continued to push the price of oil higher last week. Brent crude oil closed Friday at $67.16 per barrel, 2.1 percent higher than the start of trading on March 11 and in line with last week’s Orange alert.
The IEA on Friday said economic sentiment is pessimistic and the global economy in general “could be entering a vulnerable period.” The Federal Reserve Bank in Dallas said last week that existing home sales fell 2.4 percent in January and the five-month moving average has also moved lower. The economy is clearly late-cycle, though the Dow, a gauge the average consumer sees as an economic barometer, tells another story. This may in part be explained by the lack of congruity between real-world conditions and the pseudo-reality of the market place.
Media philosopher Marshall McLuhan observed in the 1960s that electronic media forms like television have destroyed our sense of time and space. No longer does one need to visit the Grand Canyon. Electronic forms of media like television – and today’s social media – delivers the experience to us. We no longer need a physical location to have an experience and we no longer have to think for ourselves; our media forms do it for us. Media forms influence our thought processes, those thought processes define our reality and that reality, in turn, defines our relationship with our external environment and our internal self. If I ask you to picture the Grand Canyon, it’s up to you to produce the image. If I show you a picture, I’m in control. That control can become tyrannical on social media.
Last week's attention was focused on the tragedy in New Zealand. The gunman left behind writings that drew much of its inspiration from rhetorical triggers online, from the controversial message board 8chan to Twitter. The shooter even live-streamed the carnage on social media. As McLuhan noted, the internet creates a reality disconnected from the true world. Users can enjoy the social security of internet anonymity and operate in a space less exposed to face-to-face accountability. In 1992, another media scholar, Paul C. Adams at University of Texas at Austin, noted that television creates a social space -- the more time you spend watching television, the less time you spend in the physical reality. Almost 20 years later, the same could be said for the internet – the more time one is immersed in an environment such as Twitter that is less exposed to direct, real-world consequences, the less the referential relationship with reality one can establish.
We live inside our media and it comes to shape our social space. Adams noted that electronic media creates a "pseudo-place." This "pseudo place" creates new economic and new geopolitical landscapes. The market "place" may seem disconnected from communities. Anyone reading this may understand the weight the phrase "US shale" has and the power of the acronym "OPEC." The market "reacts" to OPEC and "reacts" to President Trump’s tweetings, but in reality, there is no "place" on Twitter and no real market place. Those things have no real-world equivalent, but carry with them extraordinary influence. Nietzsche said all concepts are human inventions. Human beings forget this fact after inventing them, and come to believe that they are "true" and do correspond to reality. They don’t. The market "place" is distorting and painting bullish pictures in a bearish environment. "Recent data has confirmed the deceleration in global economic activity," OPEC economists said.
It may be a relatively quiet week. Tuesday’s data on durable goods orders could be indicative of US economic health given the large investments involved. The Bank of Japan releases its latest meeting minutes on Tuesday as well. A rate decision from the US Fed is announced Wednesday, as are data on consumer prices in the British economy. The Philadelphia Fed offers its business outlook for March on Thursday. Inflation data in Canada, one of the leading heavy oil producers, are published Friday. Expect a quieter week as Brent tests the $68 per barrel mark. A Yellow alert is in place this week, with Brent moving plus or minus 1 percent.