Where the US goes, the rest of the world usually follows. Market players will be hoping this old adage does not ring true in the coming months after the US economy fell into technical recession. US GDP shrank by just over 0.2% in April-June, or by 0.9% on an ‘annualised’ basis, government figures showed yesterday. This was the second straight quarter of negative growth. Meanwhile, separate data showed US jobless claims still running near the highest levels of the year. This latest batch of downbeat US macro data has intensified fears that the global economy is heading into recession.

But there are those that insist that the US is not in a recession. Among them is US President Joe Biden. He pointed to the strong jobs market and growing consumer spending. The downturn, he said, was the result of the Federal Reserve’s efforts to curb inflation. The US GDP report came a day after the Fed lifted its main interest rate by 75 basis points for the second straight month. And it seems that markets agree with him. Wall Street took the US’s fall into a technical recession in its stride. Leading stock indices all gained around 1% on Thursday.

As the debate of whether the US economy is in the doldrums or not trundles on, there are increasing signs that a eurozone is nearing recession. More gloomy data emerged out of the bloc yesterday, this time showing confidence among consumers and companies falling sharply. The European Commission’s economic sentiment indicator plunged this month by far more than expected to a new record low. Adding insult to injury was German inflation figures pointing to an unexpected rise in June. Small wonder that there is a growing consensus that the eurozone is heading irreversibly down a path to recession. Lie it or not, recessionary concerns are here to stay.

Unlikely role models

Most OPEC members are falling short of their output quotas. Only the UAE reached its target last month. This left the OPEC-10 group with a hefty shortfall of more than 1 mbpd in June between actual production and the target oil output level as part of the deal. The oil cartel is expected to have continued underperforming this month and will likely do so again in August. The same, however, can’t be said for Libya and Iran. The two OPEC members are exempted from production cuts and have undergone a mini-revival of late.

Libya’s oil patch has been plagued by a wave of closures of oil fields and ports since mid-April due to widespread protests. Oil production saw a 50% reduction, with the country producing an average of 560,000 bpd. Mercifully, last week, Libya’s NOC lifted the force majeure on key oilfields and exports thereby paving the way for a swift recovery in production. Sure enough, the country has managed to raise its output to 1.1 mbpd and has plans to reach 1.2 mbpd in the next few days.

The return of Libyan oil should ease some of the prevailing tightness in physical markets. However, history has taught us not to take this recovery for granted. It is far from certain that production and export rates will remain stable given the ongoing turmoil over the leadership of the country. The fact remains that several armed factions are still fighting for legitimacy. Better said, the country remains a tinderbox for conflict. The upshot is that Libya’s oil sector is still very much vulnerable to supply shocks.

Meanwhile, Iran’s oil industry seems to be going from strength to strength despite ongoing US sanctions. The country’s oil output has been steadily rising since Russia invaded Ukraine five months ago. Output reached 2.57 mbpd in June 2022, according to OPEC-surveyed secondary sources, the highest since April 2019. What’s more, the sanctioned nation is attracting strong demand for its energy exports as countries scramble to secure their oil supplies in the face of global shortages and rising prices. Iran says its oil sales have remained at relatively high levels. Iran is now exporting more than 1 mbpd of crude oil and gas condensate per day, according to petroleum ministry data. The country’s Economy Minister said this week that income from its oil exports rose by a whopping 580% during March-July compared with the same period a year ago. It appears that energy security is taking priority over adherence to US sanctions.

But it’s not all good news. Iran’s oil exports are still being held back by the elusive nuclear agreement. If a new deal were reached, the OPEC nation would be able to bring a further 1 mbpd of oil to the market. Yet the odds of a nuclear breakthrough between Iran and Western powers have all but vanished. The one major sticking point stopping the deal from being made is the status of the IRGC, and the Biden administration has made it clear that it won’t budge on this issue.

Looking ahead, Iranian oil shipments to Asia could come under pressure in the year-end period due to mounting Russian competition. More barrels from Russia will be directed to China and India as an EU ban takes full effect. Consequently, these key Asia buyers may reduce their intake of Iranian crude. For now, Iran together with Libya are doing their best to bring back some much-needed supply to the oil market. If only their fellow OPEC members would follow their example.