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OPEC Underestimates China Virus

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(Bloomberg Opinion) — The Covid-19 virus is a human tragedy for many who have been affected by it and it’s having a profound impact on the lives of a large part of the Chinese population. The impact on the rest of the world of the disease’s dislocation of the Chinese economy is yet to be fully felt. Forecasts of only a modest impact on oil demand worldwide are far too optimistic.A comparison of the latest forecasts from the world’s three big oil agencies — the International Energy Agency, the U.S. Energy Information Administration and the Organization of Petroleum Exporting Countries — highlights the huge uncertainty that exists over the virus’s repercussions for oil demand. As may be expected for a body representing oil producers, OPEC sees the impact as minimal, having just cut its first-quarter forecast for global oil demand by only 400,000 barrels a day. That looks like wishful thinking. The IEA’s revision is three times as big, and if its forecast bears out, it’s deep enough to tip the world into its first year-on-year drop in demand in more than a decade.China’s own oil consumption is down sharply as factories stay closed and travel restrictions remain in place even after the extended Lunar New Year holiday comes to an end. Congestion on roads in major cities is far below normal levels. The chart below shows journey times in Shanghai, and other Chinese cities mirror that pattern. My colleagues at BloombergNEF estimate that China’s jet fuel use is now down by 240,000 barrels a day from pre-virus levels, with departures from Chinese airports down by around 80%.Pollution statistics also capture the slowdown in economic activity and fuel use — something that under different circumstances might be reason to celebrate. China’s nitrogen dioxide emissions fell 36% in the week after the holiday from the same period a year earlier, according to the Centre for Research on Energy and Clean Air. A slowdown of 25%-50% across industrial sectors such as oil refining, coal-fired power generation and steel production contributed to the drop, according to the independent research organization.However, even as the Covid-19 virus hits consumption, the number of very large crude carriers hauling cargoes to China has risen. That’s because independent refiners are taking advantage of the drop in crude prices to fill their storage tanks with cheap cargoes, even as they cut run rates. That’s to some extent cushioning producers now. But those stockpiles will hit future demand for crude from China’s teapot refineries, even after the immediate effect of the virus dissipates.At the same time, the Chinese government is in the process of building and filling a strategic stockpile similar to the U.S. Strategic Petroleum Reserve, as it becomes ever more dependent on imported supplies. It may also be using the price drop to boost purchases for long-term storage, raising the risk that it will cut them again as prices recover, crimping demand for imported oil in the future. By contrast, China’s state-owned processors are seeking to reduce the volumes supplied under term contracts.Even with reduced refinery runs, China is producing more fuel than it needs. Exports of gasoline and diesel have soared, according to shipping intelligence firm Vortexa. But they aren’t finding ready buyers. Most of these additional fuel exports are ending up in storage tanks in Singapore amid subdued regional demand.That brings us back to concerns over just how bad the reverberations from Covid-19 will be. The China of 2020 is very different to that of 2003, and so today’s epidemic is likely to have a much bigger international impact than the SARS virus to which it is most often compared. For a start, China’s oil consumption now is more than twice what it was when SARS hit and last year the country accounted for more than three-quarters of the growth in global oil demand, according to the IEA.In the past 17 years, China has also become much more closely linked to the rest of the world economy. Chinese travelers accounted for about 20% of total spending on tourism in 2018, according to the United Nations World Tourism Organization, while China itself was the fourth most popular destination. The virus will effect both of those figures in 2020.The country has also become the center for producing and exporting both finished goods and components. “All the signs are that there has been a major dislocation in global supply chains,” according to Caroline Bain, chief commodities economist at Capital Economics. For some products, “it’s only going to get worse in February data.” Lack of parts from China has already forced Hyundai Motor Co. and Kia Motors to halt some car production temporarily in South Korea, while Fiat Chrysler Automobiles NV plans to do the same in Serbia. Just-in-time supply chains are starting to show their fragility. There will be more to come as shipments from Chinese ports continue to suffer delays. South Korea’s government says economic impact from the virus is “unavoidable.” The impact won’t stop at South Korea.In that light, OPEC’s forecast that global oil demand will be cut by just 440,000 barrels a day in the first quarter and by 230,000 barrels a day over the year as a whole looks like wishful thinking on the part of producers. It is doing them no favors, though. A delay in reducing supplies will only make the cuts needed later even deeper.To contact the author of this story: Julian Lee at jlee1627@bloomberg.netTo contact the editor responsible for this story: Melissa Pozsgay at mpozsgay@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.



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Reeling World Economy Slammed by Dangerous Disinflationary Shock

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(Bloomberg) — The sinking global economy is suffering through a colossal disinflationary shock that could briefly push it into dangerous deflation territory for the first time in decades.With many national economies all but shutting down in an effort to contain the coronavirus, prices on everything from oil and copper to hotel rooms and restaurant take-out are tumbling.“A powerful disinflationary tide is now rising,” said Joseph Lupton, global economist at JPMorgan Chase & Co.That’s worrying because it could lengthen what may be the deepest recession since the Great Depression. Ebbing pricing power makes it harder for companies that piled on debt in the good times to meet their obligations. This could prompt them to make additional cuts in payrolls and investment or even default on their debts and go bankrupt.While weak or falling prices may seem like an unalloyed good for consumers, a widespread deflationary price decline can be deleterious for the whole economy. Households hold off buying in anticipation of ever lower prices, and companies postpone investments because they see limited profit opportunities.Even after the coronavirus crisis eases, the scars from the shutdown — elevated unemployment, shattered consumer and company confidence, and staggered returns to work — may keep price pressures in check, prompting central banks to hold interest rates at rock-bottom levels for a protracted period.“They’re at zero for at least the next two years,” Ethan Harris, head of global economic research for Bank of America Corp., said of the Federal Reserve.Monetary LargessFurther down the road, though, there’s a chance that all the monetary largess — coupled with a massive outpouring of government debt to pay for measures to fight the virus — could spawn a build-up in price pressures.“It’s possible that the response to this over the longer term could have an inflationary consequence,” former New York Federal Reserve Bank of New York President Bill Dudley told an April 2 webinar organized by Princeton University. “But in the near term, it’s very definitely on the disinflationary/deflationary side.”Lupton and his fellow JPMorgan economists forecast that their global consumer-price index will temporarily fall below its year-ago level sometime around the middle of 2020, the first time that’s happened in many decades.Much of that is due to plunging oil prices. Even with their rebound last week on reports of potential production cutbacks, they’re still down about 55% since Jan. 1.But other prices are also slipping, including for services. They have long been resistant to the downward tug that prices for internationally traded goods have been subject to, but now service-sector businesses are being slammed by the shutdowns. Lupton sees worldwide core inflation — excluding food and energy costs — falling below 1% and says there’s a risk it could stay there.Disinflationary Force“The overwhelming disinflationary force is quite large,” Diane Swonk, chief economist at Grant Thornton in Chicago, told Bloomberg Radio on April 3.While industrial countries — with the exception of Japan — avoided falling into deflation in the wake of the 2008-09 financial crisis, they’re entering this one with inflation already at depressed levels.Perhaps the world’s biggest source of deflation right now is China, where producer prices registered a 0.4% decline in February compared with a year ago after rising 0.1% in January. That’s a drag on the price of goods being shipped overseas from the world’s biggest trading nation.But China isn’t the only country in pain.Chain restaurants across Japan have rolled out discount plans for takeout menus, including Yoshinoya Co., which serves bowls of beef on rice and is running a 15%-off campaign.Read more: Deflation a Real Risk for Japan, Former BOJ Economy Chief SaysThe British Retail Consortium reported on April 1 that shop prices fell 0.8% in March, the biggest decline since May 2018, following a 0.6% February drop.And in the U.S., domestic air fares plunged by an average of 14% between March 4 and March 7, according to booking site Hopper.com. Average revenue per hotel room plummeted 80% during the March 22-28 week from year-ago levels, hospitality-data firm STR reported.“In terms of our business, COVID-19 is like nothing we’ve ever seen before,” Marriott International Inc. Chief Executive Officer Arne Sorenson said in March 19 video. “For a company that’s 92 years old, that’s borne witness to the Great Depression, World War II and many other economic and global crises, that’s saying something.”Investors seem to be looking for a long period of very low inflation, according to trading in inflation-protected securities, although some analysts caution the readings may be distorted by a dash for cash.Even before the crisis, monetary-policy makers were worried inflation was too low for the good of their economies. Now they have even more reason for concern.“Deflation cannot be ruled out, but I refuse to make an estimate,” European Central Bank Governing Council member Robert Holzman said. “If deflation is due to a slump in the real economy, it will be difficult to solve this through monetary-policy instruments alone.”Some economists think it’s inflation, not deflation, that’s the problem.“What will then happen as the lock down gets lifted and recovery ensues, following a period of massive fiscal and monetary expansion?” London School of Economics Emeritus Professor Charles Goodhart and Talking Heads Macroeconomics founder Manoj Pradhan wrote for VOX on March 27. “The answer, as in the aftermath of wars, will be a surge in inflation, quite likely more than 5% and even in the order of 10% in 2021.Former chief White House economist Jason Furman said faster inflation should be welcomed, not worried about.“I don’t think we should be afraid of getting inflation,” Furman, who is now a professor at Harvard University, told Bloomberg Radio on April 2. “If we get inflation that would be good. That would be a good sign that we have adequate demand.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.



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The first American small-batch whiskey made specifically for French consumers

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When Ashley Donahey began thinking about a future producing her own bourbon whiskey, she was still gainfully employed at the State Department as an adviser to the U.S. ambassador-at-large for war crimes issues. Two Worlds Whiskey, the brand she launched this month, was still years away, but in some respects its creation was an inevitability. The former diplomat’s passion for bourbon stemmed from her Kentucky upbringing in a family whose heritage is at once intimately tied to the American Revolution and to the early days of whiskey distilling.

In 1777, the Marquis de Lafayette set sail for America to assist the American rebels in their fight for liberty. Donahey’s fifth great grandfather, William Downard, was among the rebels in Pennsylvania who went on to become victorious, thanks in part to France and the commitment of Lafayette. After moving to Kentucky after the war, Downard began distilling whiskey just as two French brothers, Jean and Louis Tarascon, had begun making a novel style of whiskey, one aged in charred oak barrels following the centuries-old tradition of aging cognac. A swift sensation among the French cognac aficionados living farther down the Ohio River in New Orleans, the new style earned the name bourbon whiskey as a nod to the French House of Bourbon—or so the legend holds.

Ashley Donahey, founder of Two Worlds Whiskey
Jesse Morgan

While it might be considered the ultimate homegrown American spirit,
bourbon’s origins are inextricably connected to France. Similarly, so were
Donahey’s family ties. During World War II, her grandfather fought along the
Normandy coast all the way to Cherbourg, where he remained until liberation. As
traumatic as wartime was, he looked back on his time living in France with
great fondness.

Growing up with such family memories was significant in leading Donahey down an academic and professional path—first studying French linguistics, then working in global diplomacy and business—that would permanently anchor her to France.

As for her hometown spirit, that affection stayed with Donahey throughout her career in Washington and became the foundation of a germinating idea. With even greater urgency following the radical shift in the U.S. administration in 2017, the idea became the catalyst for a total career change.

Two Worlds Whiskey is touted as the first “luxury” American whiskey crafted exclusively for France.
Jesse Morgan

That’s when she left behind a steady six-figure salary, moved to France (the No. 1 consumer of whiskey per capita), and enrolled in INSEEC business school to acquire the skills to launch a brand of her own. By 2018, Donahey was working as a brand ambassador for La Maison du Whiskey in Paris, traveling across France running tastings for bartenders, shop owners, and whiskey lovers. That’s when the startling realization hit: The French are well versed in whiskeys from Japan, Scotland, and Ireland, but they are virtually unaware of their country’s historic contributions to the creation and popularization of American whiskey.

“If they had any experience with bourbon, it was with entry-level mass market brands,” Donahey explains. “But they certainly didn’t know about the French ties nor did they have access to the best bottles.”

Donahey knew then that her brand would seek to reinforce the historic alliance between the U.S. and its first ally, France, and offer flavor profiles tailored to the sophisticated French palate.

Named for Lafayette, the “hero of two worlds,” Two Worlds Whiskey will produce several ranges, crafted with the help of The Spirits Group, a woman-run distilling consultancy in Louisville. La Victoire, the kickoff range launched with a preorder crowdfunding campaign, is a small-batch bourbon made from barrels of straight bourbon whiskey distilled and aged in the United States and bottled in Cognac. L’Alliance, the second range, also named for one of the three ships Lafayette sailed to reach America, will be distilled and aged in the U.S. but finished in France through secondary maturation in French wine or spirits casks.

From left: Donahey with chief barrel officer Monica Wolf and master blender Ashley Barnes.
Jesse Morgan

But it’s the third range, L’Hermione, that Donahey says makes her project completely novel. “It involves importing American whiskey distillate and doing the primary maturation in France, in French oak barrels, made by French coopers, in the South of France where the climate is similar to that of Kentucky,” she explains. “When it happens, it will be the very first French-American whiskey.”

That last range, the most ambitious arm of the project, will require
building an aging cellar in Provence and, as a result, bringing on outside
investors (thus far, the operation has been self-financed). For now, Donahey,
who is based in Paris, is working on selling the first 2,107 bottles of the
first batch—in a pandemic.

“Within 72 hours, I went from hosting a sold-out launch party at a prestigious venue in Paris, with guests flying in as far as Kentucky and Kenya, to hosting an impromptu Facebook Live in my living room,” Donahey says. “But I am grateful that I was still able to launch digitally and allow my supporters to reserve their bottles from the safety of their homes. I think everyone needs something to look forward to right now.”

More must-read stories from Fortune:

—Diary of a lockdown: What it feels like in 17 cities during the coronavirus
—How my job as a yoga studio owner has changed during the pandemic
—Will the coronavirus finally get Americans to embrace the bidet?
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEOs
Italian winemakers grapple with the coronavirus lockdown
—WATCH: Can San Francisco Be Saved?

Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.



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Food companies have 7 days to remove cargo from ports

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CARGO owners, which include major food companies, now have seven days to withdraw reefers from Manila’s congested ports before these are forfeited in favor of the government. 

Joint Administrative Order No. 20-01 dated April 2 expedites the release of refrigerated containers and dry vans that have piled up in Manila ports amid the enhanced community quarantine (ECQ). 

The order, published in a newspaper on Sunday, included a list of  companies whose cargoes remain at the Manila ports. 

Under the order, cargo not withdrawn within the given timeframe will be considered abandoned or forfeited, and disposed of by the Bureau of Customs.

The order said that a list of reefer containers pending at ports, including the name of the consignee, will be published in government websites, social media, and leading newspapers to inform the public of the immediate need to withdraw the reefers.

“The public shall be informed that non-withdrawal within seven (7) days shall result to abandonment.”

Fastfood companies Jollibee Foods Corp. and Golden Arches Development Corp. (McDonalds Philippines) are included in the list.

Food and beverage companies San Miguel Foods, Inc.; Procter & Gamble Philippines, Inc.; The Purefoods Hormel Co., Inc.; Century Pacific Food, Inc.; Monde Nissin Corp.; Prime Pacific Foods Corp.; and Universal Robina Corp. also have cargo pending at Manila ports.

The Philippine Ports Authority (PPA) can impose penalties for refrigerated and chilled cargo that are not removed from the ports.

Within 24 hours after a decree of abandonment and forfeiture has been issued on these containers, the Bureau of Customs (BoC) will decide how these items will be disposed off. Goods that are fit for consumption will be donated to the Office of Civil Defense, once approved by the Finance secretary.

The PPA had earlier warned that cargo congestion at Manila ports may cause the terminals to shut down, and may lead to a shortage in food and other supplies.

The order was released in order to “ensure the availability of essential goods, in particular food and medicine, by adopting measures as may reasonably be necessary to facilitate and/or minimize disruption to the supply chain.”

The list also includes dozens of containers for fishery companies, including the Royale Fishing Corp., Silver Sea Star Fishing, and Maria Fe Fishing Corp.

Rustan Coffee Corp. (Starbucks Coffee Philippines), Foodsphere, Inc.; Fonterra Brands Philippines, Inc.; Happy Hunting Ground Farms Corp., and Consolidated Dairy and Frozen Food are also in the list, among many others.

Non-food companies like Glaxosmithkline Philippines, Inc.; Universal Power Solutions, Inc.; Rizal Commercial Banking Corp. also have cargo pending at the ports.

The order was signed by the Department of Trade and Industry, the Department of Agriculture, the Department of Finance, the Bureau of Customs, and the Philippine Ports Authority. — Jenina P. Ibanez



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