NEW YORK/HONG KONG/LONDON (Reuters Breakingviews) - Corona Capital is a column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.
SLIPPERY SLOPE. Oil producers can’t stop the bad news. On Tuesday the International Energy Agency said world energy demand may not make a full recovery until 2025 as economic slowdowns linger. The same day, the Organization of the Petroleum Exporting Countries cut its estimate of world oil demand in the current quarter. That’s a problem for a market that, even before Covid-19, was awash in black gold.
The price for a barrel of West Texas Intermediate, at around $40, is a far cry from its mid-April price, when it went below zero. Yet plenty of markers suggest oil may never get above $50, the price the Federal Reserve Bank of Dallas suggests the U.S. drillers break even. Top of the list: electric vehicles may be on track to triple their market share in Europe this year. Even when global economies bounce back, an increased need for oil may be a thing of the past. (By Lauren Silva Laughlin)
LIGHTER WINGS. Delta Air Lines is looking less bad, and that’s saying something. The Atlanta-based airline said its cash burn slowed to $18 million per day in September from a daily rate of $27 million in June. The company expects that loss to narrow to as little as $10 million by the end of the year. With some $16 billion in cash or the equivalent on the balance sheet, Delta could last more than four years at the burn rate predicted for the end of 2020 before running out of dough.
The company seems to be managing itself fairly well through the pandemic. While Chief Executive Ed Bastian said it could be two years before the airline achieves a “normalized revenue environment”, it has cut down on fleet, headcount and overhead since the start of the year. During a pandemic, that’s the equivalent of liftoff. (By Lauren Silva Laughlin)
STILL HUNGRY. The pandemic has overshadowed many other problems confronting humanity. Over 55 million people in seven troubled countries are living in a food crisis or emergency, according to an Oxfam study. Funding, moreover, hasn’t been forthcoming, with food security donations meeting less than 11% of the $2.4 billion requested by the United Nations. Oxfam warned in July that by the end of the year, as many as 12,000 people per day could die from Covid-19-related hunger – potentially more fatalities than from the disease itself – even as eight of the largest food and beverage companies had paid out over $18 billion to shareholders.
The pandemic, and the resources deployed to tackle it, has meant that the problem of feeding people now competes with other pressing priorities. At the same time, disruption to food production and supplies continue to hurt the most vulnerable of communities. The funding gap only highlights this growing inequality. (By Sharon Lam)
GIFT BALLOON. China Eastern Airlines, one of the country’s Big Three state carriers, is getting a $4.6 billion injection of capital after losing $1.3 billion in the first half. Rival China Southern received similar help last year. These investments are not supposed to be considered bailouts, but rather part of Beijing’s fuzzy “equity diversification” push. This case involves no private money, only funds from different government-controlled investors, including a life insurer and a tourism company.
However thin the reform excuse, cash is always welcome. It lands at a good time for $10.8 billion China Eastern, whose Hong Kong shares have tumbled 23% this year as passenger traffic nosedived. Domestic air travel showed some signs of revival during the October national holiday week, while the recent rally in the yuan should help with dollar-denominated fuel costs. China Eastern isn’t yet clear for takeoff, but some financial clouds have cleared. (By Pete Sweeney)
VACCINE SETBACK. Johnson & Johnson’s vaccine “pause” is another stumble on the increasingly treacherous path to a Covid-19 remedy. On Monday night, the $400 billion drug giant stopped all trials of its coronavirus inoculation after one of its participants had an “adverse event”. Last month, British drug giant AstraZeneca slammed the brakes on its vaccine after a participant fell ill.
While it’s still unclear whether J&J’s vaccine caused the condition, it may still suffer a delay. After all, U.S. trials for AstraZeneca’s remedy are still on hold. The news may also do little to reassure the two-thirds of Americans that say they are either not very likely or not at all likely to take a first generation inoculation. J&J might also struggle to recruit the 60,000 participants it needs for its final trial. With more and more vaccines stumbling, hope for a Covid-19 silver bullet is fading. (By Aimee Donnellan)
SPEND AND TAX. UK Chancellor Rishi Sunak faces a tricky few years. The latest analysis from the Institute for Fiscal Studies, a think tank, shows that the country’s borrowing is set to balloon to 350 billion pounds this year as the coronavirus ravages the economy and pushes up government spending. Equivalent to 17% of GDP, that’s higher than any year except during the two world wars.
The legacy of the pandemic means Prime Minister Boris Johnson’s manifesto pledge to cut borrowing as a percentage of national income is in tatters. The question is how quickly Sunak should try to bring debt, likely to exceed 112% of GDP by 2025, under control. Merely to keep borrowing at around 100% of GDP would require a harsh fiscal consolidation equivalent to 2.1% of GDP, the IFS reckons. Yet some three-quarters of the increase in national debt is due to low growth, not Sunak’s crisis measures. That suggests targeted borrowing to boost growth should not be off the cards. (By Neil Unmack)
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