OPEC+ infighting blocks an oil-supply increase. Pfizer’s vaccine remains highly effective at reducing serious illness. China’s crackdown shows the country’s tech firms are a risky bet. Here’s what you need to know.
OPEC+ was plunged into crisis as a worsening fight between Saudi Arabia and the United Arab Emirates blocked an oil-supply increase. What happens next will determine whether the breakdown of talks — which sent crude climbing toward $80 a barrel — could escalate into a conflict as bitter and destructive as last year’s price war. At stake is the stability of the global economic recovery against a backdrop of growing inflationary pressures and the ability of the producers’ alliance to retain its hard-won control over the oil market.
Aside from oil’s surge, investors are watching for a potentially more hawkish tilt at the Federal Reserve. Minutes from the Federal Open Market Committee due Wednesday will help gauge where members are on the tapering timeline. U.S. equity-index futures have been fluctuating between gains and losses, with stock and bond markets closed for the July 4 holiday.
Pfizer’s vaccine appears to be less effective in halting the spread of the delta strain, though it remains highly effective at preventing severe illness, according to data from Israel’s government. The shot protected 64% of people against Covid between June 6 and early July, down from 94% previously, the Ynet news service reported, citing health ministry numbers. At the same time, the vaccine’s efficacy at preventing hospitalization slipped to 93% from 98%. Meanwhile, Singapore’s government is recommending vaccinated people avoid strenuous physical activity for a week after getting the shots, as a few cases surfaced of mostly young men experiencing heart problems while a teenager suffered from cardiac arrest following inoculation.
To the world’s investors, the saga over Didi has made China’s biggest tech firms a riskier bet as President Xi Jinping seeks to control one of the country’s most valuable resources: big data. Didi collects vast amounts of sensitive data from half a billion annual active users, mostly in China, and the country’s crackdown is expanding to also include two other companies that recently listed in New York.
Some projections show China will hold a third of the world’s data by 2025, potentially giving it a massive competitive advantage in areas like artificial intelligence to drive the modern economy. And the geopolitical stakes are high: The Biden administration is reviewing what user data should be off limits to China, and Beijing is similarly concerned about handing over information.
Many small- and medium-sized enterprises, the backbone of Thailand’s economy, are struggling with crushing debt loads that could force them out of business as the latest wave of Covid infections dims the prospects for an economic recovery. These Thai businesses, many of them concentrated in the tourism industry, have been hit especially hard since the country closed its borders last year, sending the economy to its deepest contraction in more than two decades. The situation has worsened with daily cases and deaths at record levels, leading the government to impose fresh restrictions in late June. As we write this, Thailand’s prime minister is isolating at home after Covid exposure at Phuket’s reopening events.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours:
And finally, here’s what Tracy’s interested in today
Markets in the U.S. will be welcomed back from the long weekend with drama in the oil market and an inflationary conundrum. Will OPEC's latest bout of infighting push oil prices higher or lower in the longer term? So far the market is focused on the short-term price action that might result from the group failing to reach an agreement over a supply increase. Analysts at TD Securities are talking about the stalemate fueling an "explosive summer breakout" in crude prices, with the global benchmark, Brent, already having briefly risen above $77 for the first time since 2018. Meanwhile, the market is moving further into extreme levels of backwardation as traders price in much tighter inventories. Supply had already been constrained with the U.S. recently drawing down oil stocks at
since data began 40 years ago.
But comments from the Iraqi oil minister hint at an alternative result of the latest OPEC drama, one where the breakdown of cartel cohesion sparks a drop in oil prices: “We do not want a price war,” the minister said. “And we do not want oil prices to rise to more than the current levels.” So far, OPEC seems to be veering toward the latter “higher oil price” scenario. But the worse the dispute gets and the higher prices go, the more tempting it will be for members to boost their production and flood the market. Meanwhile, surging oil prices put a massive political target on OPEC's back at a time when politics seems to be a major weakness for the group.
You can follow Tracy Alloway on Twitter at @tracyalloway.
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