Primary Vision Insights – April 6th, 2020

By Mark Rossano

Sections

President Trump Tweets and the Responses from Abroad- Short Answer Fade the Rally Deep Dive on Country Breakdowns and Pricing for Spreads/ Futures/ Spot Crude Oil Export Country Specifics Highlighting the Oversupply Remains Even with an “Agreed” Cut U.S. Crude Oversupply and Tank Tops Being Hit Global Oversupplies in Products and How Things Get Worse with Ships Finishing Routes Food Inflation is Just Beginning Emerging Market Currency Inflation Fears Ramping

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President Trump Tweets and the Responses from Abroad- Short Answer Fade the Rally

The news today has been “riveting” with President Trump tweeting that he discussed the oil markets with MBS: “Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!” The comment was followed up with Saudi Arabia calling for an “emergency” OPEC meeting, which was quickly echoed by Iraq. The below is a summary of headlines with clarifications that showers the whole thing with doubt:

Oil Nations meeting called to “Eventually” agree to cuts Saudi Arabia called for an urgent OPEC+ meeting to reach a “fair deal” that would restore balance in oil markets, state-run Saudi Press Agency reports. President Trump is not planning to ask Domestic Oil Producers for cuts U.S. doesn’t know formal details of Saudi, Russia plans to cut oil supply, Reuters reports, citing senior admin. official. President Donald Trump said he expects Saudi Arabia and Russia to cut oil production by about 10 million barrels after he spoke by phone with Crown Prince Mohammed Bin Salman on Thursday. But a Putin spokesman, Dmitry Peskov, said the Russian president had not spoken to the crown prince. And Saudi Arabia didn’t confirm a production cut, instead calling for an “urgent meeting” of the Organization of Petroleum Exporting Countries plus Russia, according to state-run media. Russia doesn’t rule out coordination with OPEC and other oil producers and the market could benefit from such action, Energy Minister Alexander Novak says in interview with Ekho Moskvy radio. SAUDIS WANT U.S., CANADA, MEXICO & OTHERS TO JOIN ANY CUTS: DJ RUSSIA, SAUDI HAVE NOT AGREED ON ANY OUTPUT-CUT SIZE: DELEGATE SAUDIS MULL OIL-OUTPUT TO BELOW 9M B/D IF OTHERS JOIN: DJ Kuwait-Saudi Neutral Zone Oil Exports Resume, Minister Says Oil exports from the neutral zone between Kuwait and Saudi Arabia have resumed, Kuwaiti Oil Minister Khaled Al-Fadhel said. The first export was shipped yesterday, the minister said, without elaborating WORLD NEEDS 20-25M OIL OUTPUT CUT, TEXAS RRC'S SITTON SAYS

The commentary above is the definition of absurd as supply and demand are alive and well in the world- especially in the oil/ refined product market. As you proceed through the report, there will be evidence on how terrible the underlying oil market is with oil demand now at 38M barrels and on its way down to 50M. Oil exporting countries will have to either lower production or look for cheap storage options or find some sort of clearing price (if they can find one). Belarus has offered Russia $4 for their crude: “Belarus has offered to take Russian crude for $4 per barrel, less than a 10th of what it paid in January, as a global oil glut depresses prices and a political spat between the neighbors simmers. The government of the former Soviet republic wants to buy 2 million tons -- equivalent to about 15 million barrels -- in April from neighboring Russia but will refuse to pay any premiums to suppliers, according to Prime Minister Sergey Rumas.” The oversupply in the market will keep a cap on total oil flow, which is reflected by Russia’s realized prices due to the fact they have limited storage. Saudi Arabia has been increasing flow from the Neutral Zone with Kuwait, but hasn’t taken production much past 10M barrels a day. The country was “quoted” with new production at 12.4M, but any additional sales were issued from storage on hands (not that there was additional flow). The “cut” back to 9M is more reflective in the lack of sales as they have been putting crude in German, Japan, and Egypt storage. The U.S will soon get their own floating armada that will get put into storage or run through refiners which the GoM assets have prepared for by pushing as much refined product into the Colonial pipeline before it ramps down by 20%.

The morning tweets and news are irrelevant for the current backdrop where even a cut by 15M wouldn’t “balance” the market. “It is unreasonable for Russia to increase production in April as the global glut is deepening and it may become increasingly more difficult to find buyers for additional volumes, the nation’s Energy Minister Alexander Novak said in an interview to the radio station Echo of Moscow.” This is all happening as more countries enter lockdown with Russia joining the party, and already seeing gasoline demand down over 40% with the decline rising over the next week or two. Many people travel home once these are initiated so the full effect takes 2 -3 weeks to really see the full impact. Domestic demand has fallen around the world- KSA and Russia aren’t the only ones so as they ramp down their own refining assets EVEN MORE crude is open for export. These are other reasons the countries will be forced to reduce production. Russia has cut very little crude even during the OPEC+ “agreements” where they consistently cheated and produced over their allotment. Why would they come out now and say- “Sure- I will agree to a massive reduction?” KSA has been taking a brunt of the cuts, so why would they agree to additional cuts when they have ceded market share to OPEC and non-OPEC clients? Short answer- they won’t. The oversupply has reached levels where Russia gasoil is diverted to NY instead of Europe- as Europe is being flooded (more on that below) with storage levels spiking across all products in Europe. The world is upside down with these comments with… you cut… no you cut first… well we can’t cut in the U.S. because it is “unpatriotic”. The market is going to determine and help people decide who cuts, and the spot market in the U.S. is the best place to see how the global market views our product. The economic impacts are far reaching, but the market is facing a challenge that is both supply and demand oriented. On one hand, food inflation (more on that at the bottom) has been kept in check by cheap oil, but now with the desire to send oil higher as countries struggle to maintain economic order and stimulate the economy. The last thing these countries need is a spike in refined product pricing, and if (for some reason) U.S.- Russia- OPEC agree to a 10m-15M barrel a day cut- what does that do to refinery margins? Do they cut further with economic run cuts making the demand picture EVEN worse? Indonesia/ Turkey/ Thailand have taken steps to support their currency, which just highlights the pain is only beginning. Nigeria is just an example of a country that will need to adjust to the “new normal” in the energy markets that won’t see a shift higher for an extended period of time: ““What we will need to do is something that is bold, radical and one that our people can understand and buy into,” Vice President Yemi Osinbanjo said. The government will pursue mass housing , increase agricultural production, ensure improved local productivity through support for small businesses and “and majorly improve avenues to put more cash in the hands of our people and also make them productive,” said Osinbajo who chairs a committee formed by President Muhammadu Buhari to help the West African nation respond to the impact of lower oil prices on the economy. Africa’s largest oil producer relies on crude sales for about 90% of export earnings and more than half of government revenues.”

Deep Dive on Country Breakdowns and Pricing for Spreads/ Futures/ Spot Crude

Crude prices will continue to fall under the weight of extending lockdowns across the globe. The U.S. has seen several states join the call for shutdowns with Maryland, Virginia, Pennsylvania, and Florida joining with the other areas following the same protocol. This will push demand for refined products even lower, which is now starting to show up in the EIA numbers. Builds will all accelerate as the ships that have left KSA start showing up in the Gulf of Mexico (GoM), and the demand for U.S. crude falls cutting exports. Saudi Arabia has increased exports to Egypt and European storage, while also hiring tankers to be filled with oil on speculation. The steep OSP (official selling price) discount to dated Brent should attract some buyers, but timing is precarious as countries cancel or defer shipments. President Trump is planning to meet with oil executives, but the route in the oil markets is driven by supply and demand economics. We have been consistent with our expectation of seeing a 38M barrel a day decline in oil demand, which has been reached and will extend as Europe and India remain in lockdown and more states join. The peak of oil demand destruction should be 50M barrels a day or so, but the 30-38M in lost demand will be prolonged and started last month. The reinfection has started to emerge with several countries banning foreigners from entering, and some areas in China and other Asian countries. “No one can travel out of Jia county without proper authorisation, the county, which has a population of about 600,000, said in a post on its social media account. Additionally, residents are not allowed to leave their homes for work unless they have clearance to do so.” [1] These issues will persist until all areas of the globe are past the peak spread. This massive drop in demand isn’t helped by the Russia/ Nigeria/ Iraq/ KSA headlines- but when you look at the actual production figures not much has changed. Instead, some of these countries have walked back increases or claimed a rise in production but instead sold from storage or experienced canceled/deferred shipments.

The fact remains that some of the U.S. energy companies are bleeding money due to over levered balance sheets, negative cash flow, poor quality, and lack of global demand (especially within U.S. assets). Several countries have increased oil production over the last few years, while some Iran, Venezuela, and Libya face issues through sanctions and war. These increases came at a time when oil demand was becoming stagnate, while NGL, condensate, and LNG adoption increased. Many of these hydrocarbons have seen the largest increase in production, and met new demand but the new oil was being pushed to a tight market facing regulation and demand problems. The demand problems have been mounting since last year due to a warm winter, a struggling global economy, and China entering the refined product market. The problems peaked in Dec 2019, and the emergence of COVI-19 onto the stage was just jet fuel thrown onto a raging forest fire. These problems will push WTI Cushing to $15/ Brent to $19 (they will maintain about a $4 spread), and LLS to single digits.

The problems in the oil markets are accelerating with more announced deferrals and force majeures coming form the Indian Oil Corp. The company talked last week about reducing refining operations, so to see FM declared on crude purchases from 4 of their biggest suppliers- KSA, Iraq, UAE, and Kuwait. Indian oil is looking to defer some volumes expected in April, while canceling others in a move to manage storage levels. “The company has reduced processing at its refineries by at least one-fourth as shutting down of businesses, suspension of flights and most vehicles staying off road due to the 21-day nationwide lockdown has led to drastic fall in demand.” “The sources said with demand falling, crude intake at refineries has been cut. Both crude and finished petroleum product tanks are full to the brim and refineries cannot take more crude.” [2] “Besides IOC, Hindustan Petroleum Corp Ltd (HPCL) too has declared force majeure on Iraqi supplies. Also, Mangalore Refinery and Petrochemicals Ltd (MRPL) has shut a third of its 15 million tonnes a year refinery and has declared force majeure with all suppliers.” The total amount of crude India normally consumers is about 5M barrels a day, and assuming a 30% decline we come out with about 3.5M barrels a day of new demand. The problem is- based off these estimates on refiners and seeing comment on tank tops means it is better to assume a 50% loss of demand, which can expand to 75% if tank tops are full and refined products aren’t moving. This means another 1M barrels a day of demand falls off, which makes the oversupply that much worse. “The coronavirus pandemic is crushing demand for everything from transport fuels to petrochemical feedstock around the world. Diesel sales by India’s three biggest state-run fuel retailers declined 26% and gasoline 17% in March compared with a year earlier, another official said on condition of anonymity. Jet fuel sales plunged 33% while LPG rose 1.7%, the official said.- Source Bloomberg.” These numbers only capture 6 days of the India lockdown that started at 12AM 3/25/2020.

China has seen some normalization with flows recently increasing from Russia given the fact that prices have fallen to Jan 2011 lows. While this is an increase for Russia, the total numbers are still lackluster vs February. “In total, 7.82m tons, or 1.85m b/d, of Urals loaded from three main ports in March, vs 7.68m tons or 1.94m b/d in February- Source Bloomberg.” “10 cargoes of 100k tons each that loaded from Baltic ports last month are bound for China, compared with 540k tons in February. Flows to China expected to rise further this month, with at least 13 cargoes having been bought by Chinese buyers, said traders with knowledge of matter.” These flows are important because Russia lacks sufficient storage throughout the country, and even though Russia has increased- Europe has seen a huge drop off in demand serviced by the Druzbha pipeline, which prompted the steep discount on the water. The lack of storage meant the crude had to price at a steep discount to ensure movement, but the fall in demand and shortage of tank space will require Russia to pause (likely slow) production. At the beginning of the year, Russia announced a production increase of 300k barrels or so to go back to the Dec highs of about 11.6M barrels a day.

Oil Export Country Specifics Highlighting the Oversupply Remains Even with an “Agreed” Cut

Even though Russia, KSA, Iraq, and Nigeria have talked about increasing there production in Jan/ Feb and as recently as today (thanks Iraq and Nigeria), there is little to no way these additional barrels will find a home as the physical market is just offers with little to no bids on the horizon. There have been some May sales, but they are mostly deferrals and are comprised of spot buyers as the monthly contractual sales face headwinds driven by force majeure/ requested deferrals/ or outright cancellations.

Angola: “Sonangol had 18 cargoes altogether in May’s Angola export plan; 12 were allocated to term lifters, a lot of Olombendo grade was already sold”

Angola will likely be able to maintain production within their normal range due to quality and relatively stable contracts.

Nigeria: “Nigeria’s known May oil exports will climb 13% m/m to 2.04m b/d, from 1.81m b/d in April, according to tally of loading programs for 17 grades of crude and condensate seen by Bloomberg.” Nigeria’s oil minister said last week that the nation aims to pump as much as possible, continue to offer deep discounts in short-term.

“Nigeria may have to eventually shut in unprofitable production if price war is prolonged, he said” Nigeria will face mounting headwinds due to their lack of contractual buyers and rising oversupply and rising shortage of coastal storage. The “growth” in exports in May is really driven by the cancelations and deferrals mounting from March and April. As tank spaces runs out, we will start to see shut-ins across their system in April as companies look to limit production. This won’t result in an announced drop in exports even as demand returns on the otherside of lockdowns as shipments are filled from storage.

Iraq: “Iraq plans to raise output by about 200,000 barrels a day, reaching 4.8 million barrels a day in average production, according to a person with knowledge of the matter. The country would join Saudi Arabia, Russia and others in adding more barrels to a sated market amid a price war -- even as the coronavirus saps global demand. Iraq will ship 3.6 million barrels a day in April, using its pipelines at maximum export capacity, the person said, asking not to be identified because the information isn’t public. By comparison, Iraq’s exports for March averaged 3.4 million as of Sunday.” “Asia is still Iraq’s largest regional market, and China remains its biggest single buyer, accounting for 800,000 to 900,000 barrels a day in March exports. Some refineries in China are increasing their processing as life starts returning to normal in some cities there, according to the person.”

Iraq has relatively stable flow to China, but won’t be able to push the additional 200k barrels- especially given the discounts from Russia/ Nigeria/ KSA in the market. The comment on the increase makes great headlines but will not truly materialize as oil demand remains under significant pressure. The U.S. could buy some additional cargoes on speculation, but that would be one offs and unlikely over the next week or two as the U.S digests the 10M barrels or so of KSA crude. The U.S. also canceled several KSA cargoes for April loading- supporting the unlikelihood of Iraq purchases over the next few weeks.

The above are just some examples of pressure facing some of the largest exporters in OPEC+, with stranded cargoes and capacity being sent to storage. Brazil has announced a cut of 200k barrels a day,as well as reducing shifts for workers by 25%. Another area experiencing pressure is Canada, which could quickly reach commercial storage limits. Typically, an oil sands position needs to be below $10 or so for an extended period of time before there is any talk of shut-ins. Oil sands are difficult to shut down due to the complicated nature of the steam flood and process of extracting the oil. The speed and longevity of the drop in West Canadian Select (WCS) has prompted producers to begin rolling back activity.

U.S. Crude Oversupply and Tank Tops Being Hit

U.S. assets are being forced to shut-in as pipelines adjust flow rates, refiners drop utilization rates, and exports fall to 2M barrels a day. The large disconnect between spot prices and future prices will converge with “futures” trading down and converging with spot rates- specifically LLS and Magellan East. These are key pricing points for the export market that have maintained about a $4-$6 discount vs WTI Cushing Spot and WTI Cushing Futures pricing. Coastal prices have had to offer up a steep discount in order to entice buyers, but also to account for the large increase in shipping rates. More oil will attempt to flow into Cushing, which has about 91.42M barrels of storage capacity vs the current 42.8M putting spare capacity at about 48.62M. It is important to note that these numbers are estimates as not all the capacity in a tank can be utilized- there is about 10% at the bottom of the tank where all the sludge/impurities settle, and space as to be left at the top of the tank to allow for gas expansion. This is why as we get closer to tank tops concerns will start to creep into the market due to the uncertainty of the “actual” tank tops and the working storage required to operate. Based on the failing dynamics in the market, production will drop off quickly.

While it is not ideal to shut-in wells, doing so in offshore- vertical assets is much easier and less reservoir damaging vs horizontal/shale. The EIA has changed the reporting structure to only show oil production monthly- instead of weekly updates- so we will see the adjustments coming up soon. Based on the below data, we can see how much how much total storage is available by product:

(as mentioned above- these are absolute figures not accounting for space required)

Oil (sum of working Capacity and Stocks in Transit) is 777.2M Oil (Strategic Petroleum Reserve- SPR) is 797M barrels (currently about 713.5M operational)- ending stock of SPR is 643.885M- spare capacity = 69.615M barrels Oil: Tank and Underground Net Available Shell Storage Capacity is 615.387M vs current 469.2M = 146.187M available storage Gasoline: 361.57M storage available vs 246.8M = 114.77M of available Distillate Fuel Oil: 212.889M vs 122.2M = 90.689M Jet Fuel= 62.595M vs 38.3M = 24.295M

The U.S. still has capacity, but it can fill up as imports remain at about 6M barrels a day of oil, which will rise when the KSA crude arrives and refinery runs continue to fall. Refiner utilization rates have fallen to 82.3% as implied demand for products cratered driven by gasoline. Gasoline implied demand has fallen to the lowest levels I can find (below 1991). Refinery utilization rates have fallen to 2008 levels, and will move lower as the numbers capture recent announcements of additional reductions. U.S. exports fell to 3.155M barrels per day, and will shift lower again as more oil is pushed into storage. As pipelines reduce flow, E&Ps will be forced to accelerate the shut-ins laying down more rigs and reducing completion crews across the country. This will shave 2M barrels a day out of U.S. production relatively quickly with a limited ability to get it back to 13M due to limited cash reserves. “Country’s total storage is ~70% full at 460m bbl with recent inventory builds ~2m b/d, Wood Mackenzie analysts say in webinar. Stockpiles are seen filling by summer amid crash in demand due to coronavirus pandemic.” I think this is a fair assessment on when tank tops can be hit based on my figures above.

Gasoline Implied Demand- Seasonally Adjusted: 2020 Represented by the Bold Line

Refinery Utilization Rates Seasonally Adjusted- Back to 2008 Levels

Distillate has found some favor as the trucking industry works overtime to keep the U.S. supply chain from full seizing up and moving products around the country. It has been a bright spot, but a better price also attracts floating product as Asia dumps refined product into the market. The below chart helps show that there is a small bright spot for refiners, but the terrible margins in other products and concern over storage space will still keep refinery utilization pared back. It is also important to understand the “best” crude to make diesel, and it is either medium (sweet or sour- doesn’t matter for U.S. GoM refiners) or heavy sour. This puts U.S. light sweet at a further disadvantage, and limits total runs as cokers run “heavier”, and the buyers for U.S. splash blending in Europe no longer need U.S. exports at the moment.

Europe had a similar glimmer of hope with prices rising, and while it is a nice price movement- it is important to put it in the context of seasonality. The below chart shows that prices still remain depressed but have seen a relatively strong rally off the bottom. This price rally has become a dumping ground for Asian diesel as: “Asia is overflowing with jet and diesel, demand destruction is taking place faster than refinery supply cuts,” said Serena Huang, a Singapore-based senior analyst at analytics firm Vortexa Ltd. “Massive volumes of surplus barrels are moving into storage tanks in Singapore and Malaysia, and finding homes in Africa and Europe.” This is attracting “About 580,000 barrels a day that were loaded from Asian terminals are expected to discharge at European ports during April. Not only is that a sharp jump on March arrivals, it also comes at a time when the continent’s demand is expected to drop by a fifth or more because of the impact of the coronavirus. Supplies from Russia’s biggest export facility have surged from a year ago.”

ICE Gasoil Premium to Crude Oil for June in Northwest Europe

The flow is also coming at a time when the U.K has entered into a lockdown, and Italy just extended it to April 13 th . The spread of COVID-19 has prompted the complete shut-down of many European countries and resulted in at least a 50% reduction in refined product. Most countries are seeing a 65%-85% reduction is gasoline demand and diesel demand from 50%-60% across the board. Europe consumes about 15M barrels a day of crude, and we have estimated about a decline of 4.5M barrel a day decline, which will increase as countries remain in lockdown. This was recently corroborated by FGE: “European refiners could be forced to slash runs by more than 5m b/d in response to the slump in demand caused by the coronavirus, FGE said in a note.” Further cuts will be coming- especially as Asian diesel comes onshore and gasoline demand falls north of 50% across all of Europe on average.

Global Oversupplies in Products and How Things Get Worse with Ships Finishing Routes

Two other key ports/ data points to watch are Dubai (Fujairah) and Singapore. The Middle Eastern hub of Fujairah has seen stockpiles spike as demand for products (including bunker fuel) have started to fall drastically now that ships complete transits scheduled prior to the COVID-19 outbreak. This will put pressure on storage capacity that is already limited driving up prices across the area.

Singapore is another region that shows how quickly the situation is changing. The numbers are now at a new record (or at least going back to 1998. The builds in the area have been driven by middle distillate and residue fuel with light distillates quickly approaching new record levels. The fact that diesel/ distillates are flowing to Europe, and there is still such a large increase in storage points to just how terrible the demand situation is globally.

Builds will start to rise as ships complete their routes that were set prior to the global pandemic, which will cause other issues at specific ports. How quickly can you unload or can you even move cargo off the vessel? Once the vessel is unloaded, is there an order or something to put back on the ship for it to set sail to the next port. The density of marine traffic posted by the company MarineTraffic helps highlight how things have slowed, but just how much worse they can get over the next 2-3 weeks. This is going to weigh on bunker fuel as the shipping slows further over the next 2 weeks.

Food Inflation is Just Beginning

We have been talking about the disruptions across the supply chain throughout this crisis but were confident the recession began in Q4’19. The issue that is moving front and center is food protectionism and hoarding. Toilet paper is a small microcosm of something much bigger that can impact whole nations when food scarcity hits home. India has 1.3B people and is in full lockdown with many migrant workers heading back to their local villages. These movements will limit the number of workers for everything from textiles to crops. The U.S. is a perfect example of a country that sees an inflow of workers to the farmland for key plantings that won’t be able to get through the border. It is hard to gage what the shortfalls will be in the near term, but the wide swings in pricing are something to focus on and commentary from countries. Ship traffic will also provide a key real time look at cargoes moving around the world. The big staples of the world are wheat and rice, and those core foods have come front and center for Russia, Kazakhstan, and Vietnam. Turkey and Jordan have announced bans on fruit and vegetable exports with Thailand now extending the egg export ban through the end of April. “Thailand is one of a number of countries where hoarding threatens to push up egg prices. Some supermarkets have started restricting the amount people can purchase. Panic buying has increased in the Asian nation following a surge in coronavirus infections.” Russia has increased their food ordering with a new decree: “Russian Prime Minister Mikhail Mishustin signed a decree setting the country’s grain export quota for wheat, rye, barley and corn from April 1 to June 30 at 7m tons, according to a government website.” “The decree restricts exports outside the Eurasian Economic Union, a customs union including Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.” In the meantime, the Jordan Agriculture Minister has resigned as the ticking time bomb slowly expands.

These issues while small and in a distant place can create a butterfly effect that will shake-up the whole global market. The U.S. has more than enough land and ability to feed itself because if yields fall say 30% due to a delayed planting or lack of manpower- our dinner tables won’t see a huge impact because we will just export less. Prices will rise domestically, but the U.S. will have the means to feed people while the lack of exports will resort in shortages in key global markets. This fear of shortages will spark others to hoard food as well and the domino effect rolls around the globe. India and China rely on imported food to sustain their massive populations as well as countries with poor soil or limited arable land. Logistics are paramount to getting food to market, and these type of issues are only starting: “ Wheat-flour supplies in some Brazilian states face disruptions amid a lack of coordinated action by federal, state and municipal governments, Abitrigo, a group representing wheat mills, said in a statement.”

These may seem like small issues, but food inflation is magnified in poor countries where every penny counts. China has been facing inflated prices due to pork prices, and the world also dealt with a large locust swarm that is still ravaging areas in Kenya, Somalia, South Sudan, Uganda and the Congo. The locust destroy crops and pasture land for livestock, which will only exacerbate the problems the world faces with COVID-19. “Locust swarms of a magnitude not seen in decades are devastating crops and placing millions at risk of hunger in the Horn of Africa.” [3]

Emerging Market Currency Inflation Fears Ramping

The inflation caused by food is only the tip of the iceberg as several countries- Indonesia, Thailand, and Turkey have been active supporting their currencies.

Indonesia

Bank Indonesia is intervening directly in currency sport market: “If we didn’t take any measures, it will be worse. Deaths will rise,” Warjiyo tells reporters in Jakarta on Thursday, adding a coordinated response was needed to fund health system, social safety net and economic recovery.” Governor Perry Warjiyo said The economy is now projected to grow 2.3% this year, compared to an initial estimate of 5.3%, Finance Minister Sri Mulyani Indrawati said in Jakarta Wednesday. Under a worst-case scenario, the economy could contract 0.4%, she said.

Thailand

Thailand’s baht drops to the lowest in over a year as investors await a Cabinet meeting Friday to discuss the virus outbreak. The nation’s business sentiment falls to the lowest since 2011.

Turkey

Government-owned lenders sold between $1.5 billion and $2 billion to help support the lira on Wednesday, according to three traders with knowledge of the matter. Intervention comes amid a rout in risk assets that is weighing heavily on emerging-market currencies.

The breakdown in global trade also limits the amount of USD countries take in through exports. Countries/companies use the USD as a means to short up balance sheets and protect local currencies. They also use these dollars to import products ranging from refined products to food stuffs. In order to aid the availability of USD, the Fed has opened swap lines to provide fixed rates of exchange to key regions that need support. As the virus strikes an already struggling global economy, many bullets central banks us through monetary policy and governments through fiscal policy have been spent over the last 10 years. The fear of tightening belts and reducing quantitative easing have left the world exposed. Unemployment is rising around the world with the below highlighting just how weak Europe is as they face extended shutdowns. The U.S. faces unemployment rates of close to 30%, but out of all these furloughed employees- how many actually come back?

The below chart shows just how decimated a key piece of the U.S. market is at this point. Department stores, restaurant chains, and other bricks & mortar have informed landlords they will be unable to pay rent. These are things that have been in decline for years, and this is just another nail in the coffin where people will avoid any and all type of close contact. Many parts of the economy are so over levered a week can be like a year on cash drain, creating a negative feedback loop and speeding up the decline.