Oil Prices Are Surging Ahead of OPEC Meeting. Here’s Why. - Barron's

Who’s afraid of OPEC? Not oil traders.

OPEC officials meet today to discuss output, and nearly everyone seems to believe that production increases are coming. Benchmark oil prices are up about 1.9% anyway, after gaining 54% during the first half of 2021.

Surging demand was the story of the first half of 2021. The global economy has done better than almost anyone expected coming out of the pandemic-induced recession of 2020, pushing up the price of oil and other commodities.

Supply stands to be the story of the second half of 2021. Investors and traders can expect more production of everything as companies try to take advantage of rising prices. But will it be enough to overwhelm demand?

Unlikely. OPEC is currently pumping roughly about 25 million barrels of oil a day, down from about 30 million a day before the pandemic. Globally, oil producers, including OPEC nations, are pumping about 74 million barrels a day, down from about 82 million before the pandemic.

That 8 million barrel a day gap between pre- and post-pandemic production is a big reason traders aren’t that nervous about the July OPEC meeting.

The world could use the oil.

—Al Root

*** In this week’s Barron’s Streetwise podcast, columnist Jack Hough chats with Lowe’s CEO Marvin Ellison about inflation, shortages, and whether the remodeling boom will continue as workers return to their offices. Listen here.

***

Xi Warns China’s Rivals That They Will Hit ‘A Great Wall of Steel’

President Xi Jinping Thursday celebrated the 100th anniversary of the Chinese Communist Party with a speech warning foreign powers not to bully China unless they want “their heads bashed.”

In his hourlong speech in front of an invited audience of 70,000, Xi reiterated that reunification with Taiwan remained Beijing’s “unswerving historic task,” but stopped short of setting a timeline for what he called an “unshakable commitment.”
The Financial Times reported that the U.S. and Japan have jointly conducted secret war games simulating a reaction to a Chinese military invasion of Taiwan, according to people familiar with the matter. The Pentagon declined to comment to the FT.
China “won’t accept sanctimonious lectures from self-styled preachers,” Xi said, without explicitly mentioning foreign criticism about human rights in China, the fate of the Uyghur Muslim minority, or the crackdown on civil liberties in Hong Kong.

What’s Next: As China is recovering from the Covid-19 pandemic, Xi can look ahead to the preparation of the Chinese Communist Party’s congress next year, where he is expected to seek a third term as the country’s top leader.

—Pierre Briançon

***

Amazon Asks That FTC Chair Recuse Herself

Amazon asked that new Federal Trade Commission Chair Lina Khan recuse herself from any matters involving the tech giant, including its pending agreement to acquire the film studio MGM, which the agency is reviewing in addition to a broader review of the company.

In a petition, Amazon cited Khan’s history of sharply criticizing it as a threat to competition. Khan wrote a 2017 Yale Law Journal article about the e-commerce company saying its business raised anticompetitive concerns.
In May, Amazon agreed to buy Hollywood studio MGM for $8.45 billion, and with it a library containing the James Bond films, and television shows like “The Handmaid’s Tale.”
The filing includes a lengthy review of Khan’s comments on Amazon over the course of her career. Khan advised the House antitrust subcommittee in a recent investigation of large tech companies. The FTC declined to comment.
The Senate confirmed Khan to join the five-person commission earlier in June and the White House quickly named her to head the agency.

What’s Next: The FTC currently has a 3-2 Democratic majority, The Wall Street Journal reported. The commissioners have found bipartisan agreement but have split in some high-profile antitrust cases, and the two Republicans hold views that diverge from Khan’s.

—Liz Moyer

***

Robinhood to Pay $70 Million to Settle Regulator Claims

Robinhood Financial will pay $70 million to settle claims by regulators that the online broker provided misleading information to customers and that technology outages prevented investors from trading.

The Financial Industry Regulatory Authority, or Finra, said the fine is the highest it has ever imposed. Robinhood did not admit or deny the charges, but consented to the entry of Finra’s findings, the regulator said.
Finra said an investigation showed Robinhood gave customers false and misleading information, which included whether or not users could place trades on margin, how much cash was in their accounts, the risk of loss they faced in certain options transactions, and whether they faced margin calls.
The regulator also said that between January 2018 and late 2020, outages and critical systems failures prevented customers from trading.
A Robinhood spokesperson said the company has invested in improving its platform’s stability, enhancing educational resources, and building its customer support and legal and compliance teams.

What’s Next: Robinhood is expected to go public in one of the most-anticipated deals of 2021.

—Connor Smith

***

People Slow to Return to Jobs Cite Fear of Catching Covid

Fear of contracting Covid-19 is the top reason unemployed people are taking their time looking for work, according to a survey of 5,000 people from May 26 to June 3 by the job-listing website Indeed.com.

Only 10% of job seekers are actively looking for work, MarketWatch reported, and there are 9.3 million job openings available. The survey cited other reasons including having an employed spouse, having a financial cushion, receiving unemployment benefits, and caregiving duties.
GOP-led states canceled extra unemployment benefits or promised to do so soon, blaming the weekly $300 for encouraging people to not work. It won’t show up in Friday’s job report, as the first four states to end the payments did so the same week the government did its monthly jobs survey.
States that better contained the virus lifted their business restrictions quickly, said Oxford Economics economist Oren Klachkin. Employment increases from higher vaccinations, fewer restrictions and expiring unemployment benefits most likely will show up in the July jobs report.
Private-sector employment increased by 692,000 in June, ADP said, higher than the 550,000 jobs economists expected. The increase included 332,000 leisure and hospitality jobs, 123,000 education and health services jobs, and 62,000 trade and transportation jobs.

What’s Next: Economists expect the Labor Department’s June jobs report on Friday to be strong. Economists surveyed by The Wall Street Journal see nonfarm payrolls rising 706,000 and the unemployment rate falling to 5.6%, the strongest since March.

—Lisa Beilfuss and Janet H. Cho

***

Los Angeles Brings Back Masks to Prevent Delta Variant Spread

Los Angeles County urged even vaccinated people to wear masks in indoor public settings, so health officials can better understand how the Delta variant first identified in India is spreading. Nearly half of local cases that have been genomically sequenced are linked to the strain.

Elsewhere, mass vaccination clinics are shutting down in Chicago, Boston, New York and other sites, CVS Health is closing its dedicated vaccine clinics, and hundreds of Rite Aid stores are ending extended Friday vaccine hours as available doses outweigh demand.
A national ad campaign to boost vaccinations among Black Americans features relatives of the Tuskegee, Ala., Black men denied lifesaving penicillin decades ago. Lillie Tyson Head, daughter of victim Freddie Lee Tyson, says in one ad: “Don’t deny ourselves the opportunity the men were denied.”
Royal Caribbean Group now requires proof of vaccinations for travelers sailing from every state except Florida, because of a state mandate. Unvaccinated passengers 12 and older must buy travel insurance to cover medical, travel and other costs “should they test positive while on board.”

What’s Next: As of Wednesday, 66.5% of U.S. adults have received at least one shot, and 154 million are fully vaccinated, per the Centers for Disease Control and Prevention. The U.S. will miss President Joe Biden’s goals of partially vaccinating 70% of adults and fully vaccinating 160 million by July 4.

—Janet H. Cho

***

What’s the difference between a vacation home and a rental property, and what does the answer mean for your taxes?

Do you own a second home that you sometimes use for vacations and sometimes rent out? The IRS wants to know how much time you spend doing both those things, because the answer can affect your federal income taxes.

This column summarizes the federal income tax treatment of vacation homes that are rented out enough during the year to be classified under IRS rules as rental properties rather than personal residences.

If your vacation home falls into the rental property category, here’s the scoop on the tax angles.

***

—Newsletter edited by Liz Moyer, Stacy Ozol, Mary Romano, Matt Bemer, Ben Levisohn

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Oil Prices Are Surging Ahead of OPEC Meeting. Here’s Why. - Barron's
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