The Conundrum
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“Standard individual-scale policy approaches such as isolation, contact tracing and monitoring are rapidly (computationally) overwhelmed in the face of mass infection, & thus also cannot be relied upon to stop a pandemic” - a note dated *Jan 26th, 2020*
***Editor’s note: we’re a day early this week, & we’ll be taking next week off.***
CONUNDRUM.
The are two - starkly - conflicting political economic stories.
We’re having a hard time weighing them.
They are:
The Good - the vaccines look like they work
The Bad - *both* (1) herd immunity & (2) the policy combination of isolation, contact tracing, monitoring have not worked
**The vaccines appear to be faster & better than forecasts**
THE BAD.
Herd immunity has failed in Sweden
So have US / EU lockdown measures
A third policy has appeared to “work” - that policy can be characterized as being incredibly “harsh” with *initial* lockdowns, followed by strict travel bans.
By “harsh”, we mean locked-down until cases hit zero (or zero in most regions).
This is relevant, bc the UK & EU are about to lift their - relatively - soft lockdowns for a 2nd time.
And holiday travel / celebration is expected (albeit less than normal) across the US, UK, & EU.
It is what-it-is.
We’re *not* making political statements
We *are* making forecasts
We think the fallout from December celebrations - hitting markets in the 2nd half of Q1 - will be a *Political Economy Dumpster Fire*:
Both (a) soft lockdowns & (b) herd immunity have failed
Those failures have killed any political will left for hard lockdowns
The primary author of our leading quoted note is Prof Yaneer Bar-Yam.
He co-wrote that note w/ Nassim Taleb.
In January - and it still holds.
On Friday, a podcast interview w/ Yaneer was published.
The - likely, in our mind - event of a 3rd wave (and a subsequent 3rd lockdown) will have consequences for oil markets & their participants, as well as the broader global economy.
Unless the vaccines arrive first -
OPEC.
Yesterday’s OPEC JMMC meeting ended without an agreement to extend production cuts.
The UAE & Kazakhstan don’t appear to support an extension of the current cuts.
Russia also appears to hold that position, but that could be a deception of sorts.
The OPEC ministers meet today at 2pm (Vienna time).
The perfect Q1 storm (ideally, to be avoided) is:
OPEC does not extend the cuts
The vaccines take months to distribute
Normal holiday celebrations inadvertently spread the virus
We do not view this as the most likely outcome, but we also don’t think that the market has digested the probability (we give it 1/4) of these events occurring -
OTHER NEWS.
The #EFT community is running a fundraiser for Oilfield Families In Crisis:
The campaign is halfway to its $100K goal
“An EXTREMELY generous EFT participant has offered to match the pot up to $100K. So whatever you donate will in effect be doubled”
Additional matching from Dan Pickering & QuickDraw
h/t to @EnergyCredit1 for organizing
That’s it for this week - we’ll be back on Dec 15th - enjoy the Cyber Monday Deals -