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U.S. And OPEC Flood Oil Market Ahead Of Midterms

U.S. And OPEC Flood Oil Market Ahead Of Midterms

Eagle ford rig

OPEC and the U.S. are together adding enormous volumes of new supply, which together have softened the oil market.

In October, OPEC hiked oil production to the highest level since 2016, back before the oil production cuts went into effect, according to a recent Reuters survey. The higher output, led by Saudi Arabia and the UAE, come just as Iranian oil is going offline. Also, Libya saw a sharp rebound in production, although the country is not part of the OPEC+ production cuts.

The 15 countries in OPEC produced an average 33.31 million barrels per day in October, the highest since December 2016. That was also up 390,000 bpd from September. “Oil producers appear to be successfully offsetting the supply outages from Iran and Venezuela,” said Carsten Fritsch of Commerzbank.

Russia, which is not part of OPEC but part of the OPEC+ coalition, continues to produce at post-Soviet record highs.

Iran lost 100,000 bpd in October, due to buyers cutting back as U.S. sanctions near, but the losses were more modest than many analysts had expected. In fact, despite the hardline rhetoric from Washington, the U.S. is poised to grant waivers to several countries that are unable to cut their imports of Iranian oil to zero.

That was largely predictable. Top importers of Iranian oil, including India, China and Turkey, could not slash their purchases to zero without incurring a significant economic cost. The U.S. pressed these countries, but ultimately had to back down. “We want to achieve maximum pressure but we don’t want to harm friends and allies either,” U.S. national security adviser John Bolton said on Wednesday. He recognized that some “may not be able to go all the way, all the way to zero immediately.” The admission is notable since Bolton is widely known as one of the most extreme hardliners when it comes to Iran.

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Russia, India And Iran To Cooperate On New Trade Route Alternative To Suez Canal

After their leaders pledged to strengthen bilateral trade and military cooperation at a bilateral summit last month, Russia and India announced earlier this week that they had sealed a long-discussed $6 billion arms deal despite threats of economic sanctions from Washington. And in the latest indication of the increasingly close relationship between the two countries, Iran, Russia and Iran announced on Thursday that they would meet next month to work out the details of a massive project to open up a new sea-land transport corridor that would that would be a cheaper and shorter alternative to shipping oil and other goods through the Suez Canal.

India

According to RT, the North-South Transport Corridor (INSTC), the name for the new transit route, will connect India to Russia and Europe via a combination of sea routes and an overland passage through Iran, according to Iranian state-owned news outlet Press TV. The 7,200-kilometers long corridor will reduce the time and costs of shipping by up to 40%. Transport time between Mumbai and Moscow will fall to 20 days. The annual capacity of the transport artery is expected to reach 30 million tons.

Maps

Indian logistics companies presently need to route shipments through China, Europe or Iran to access Central Asian markets. Already, routing shipments through Iran is the least time-consuming option. But the INSTC will have the ancillary benefit of allowing Indian companies to forge a new trade route to Afghanistan without having to travel through Pakistan, as tensions over Kashmir are once again on the rise. The passage corridor through the Persian Gulf will mean billions of dollars in trade for Afghanistan, cutting its dependence on foreign logistics.

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Mossad Assisted Denmark In Thwarting Terror Plot; Iran Slams Allegation As “False Flag”

Mossad has claimed responsibility for tipping off Danish authorities after they thwarted an alleged terror plot by Tehran to assassinate three opposition figures living in Denmark, according to a senior Israeli intelligence official quoted in the Times of Israel.

This comes days after it was revealed this week that a Norwegian citizen of Iranian background was arrested in Sweden on Oct. 21 in connection with the plot and extradited to Denmark. The head of Danish intelligence announced on Tuesday that the assassination was meant to target the leader of the Danish branch of the Arab Struggle Movement for the Liberation of Ahvaz (ASMLA) which seeks a separate state for ethnic Arabs in Iran’s oil-producing southwestern province of Khuzestan.

Israeli officials now say European authorities were tipped off by its elite foreign intelligence service, according to the Times of Israel report:

The information about Israel’s involvement in the thwarting of the plot was first released to a small number of journalists by a “senior official,” but was later confirmed by others.

According to Israel, the Mossad gave Denmark the information about the Iranian plot to kill three Iranians suspected of belonging to the anti-regime Arab Struggle Movement for the Liberation of Ahvaz.

The suspect in custody has denied the charges, which have also been slammed by Tehran as a “false flag attempt” to frame Iran and further tarnish its reputation and global standing.

A manhunt for the Iranian plotters caused road closures in Denmark and Sweden. via EPA

Iranian foreign minister Mohammad Javad Zarif  issued the following statement via Twitter on Wednesday: “Mossad’s perverse & stubborn planting of false flags (more on this later) only strengthens our resolve to engage constructively with the world,” he wrote.

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US Approves Waivers On Iranian Oil Imports As Supply Panic Fades

With oil prices already extending the drop from their highs as the trader “panic attack” identified by celebrated energy analyst Art Berman abates, and approaching a bear market from recent highs, a Friday morning report from Bloomberg will likely ensure that prices continue to move lower.

According to an anonymous “senior administration official”, the US will soon approve waivers for eight countries, including Japan, India and South Korea, that will allow them to continue buying Iranian crude oil even after sanctions are reimposed on Monday. China is also believed to be in talks to secure a waiver, while the other four countries weren’t identified. The waivers are part of a bargain for continued import cuts, which the administration hopes will lead to lower oil prices.  Secretary of State Mike Pompeo is expected to announce the exemptions on Friday.

Speculation that waivers could be forthcoming had been brewing for some time, and has been one of the factors driving oil prices lower in recent weeks. Pompeo has acknowledged that waivers were being considered for countries who insist that they depend on Iranian supplies,while adding that “it is our expectation that the purchases of Iranian crude oil will go to zero from every country or sanctions will be imposed.” Assuming the US does follow through with the waivers, it’s expected that they would be temporary, and the US would expect that the recipients would continue to wean themselves off Iranian crude. The administration will also reportedly ask that these countries reduce their trade in non-energy goods.

It’s believed that Turkey, another major importer of Iranian crude, may be one of the four working on an exemption, according to Turkish Energy Minister Fatih Donmez told reporters in Ankara on Friday.

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Trump: There’s Enough Oil To Offset Iran Loss

Trump: There’s Enough Oil To Offset Iran Loss

Trump Iran

President Donald Trump has determined there was enough crude oil and oil products supply globally to offset any loss of supply from Iran after U.S. sanctions enter into force next week.

In a memorandum, Trump said “there is a sufficient supply of petroleum and petroleum products from countries other than Iran to permit a significant reduction in the volume of petroleum and petroleum products purchased from Iran by or through foreign financial institutions.”

The memorandum also mentioned there was enough spare production capacity globally to allow for any necessary production increase. Amid growing worry about the global economy, however, the necessity for any production increases in oil has been questioned by analysts and Saudi Arabia’s Energy Minister, Khalid al-Falih, although Falih also separately said the Kingdom will continue to boost production this month.

Earlier this week, Reuters reported that the world’s top three producers—Russia, the United States, and Saudi Arabia—pumped 33 million bpd combined in September. A month later, Russia’s production alone hit another post-Soviet record of 11.41 million bpd.

These figures are in line with the sentiment expressed by President Trump and expectations by some observers that the effect of the sanctions’ entry into effect on prices will be moderate. This is what the Congressional Research Service’s top Iran expert Kenneth Katzman said, commenting on Trump’s memorandum, as quoted by the Washington Examiner.

Recent reports that Iran’s oil exports ahead of the sanctions were higher than earlier estimated also provided fuel for expectations of a moderate price effect, as did the news that Washington has granted India a waiver from the sanctions, obviously satisfied with the nation’s efforts to reduce its imports from Iran.

Sanctions against Iran will enter into effect on November 5 at midnight, a day before the mid-term elections in the United States. Keeping a lid on oil prices ahead of the vote has been a priority for the Trump administration.

US Blames Iran For Impoverishing Civilians While Prepping Further Sanctions

US Blames Iran For Impoverishing Civilians While Prepping Further Sanctions

The United States government is preparing to implement an additional level of sanctions against Iran for its refusal to meet a dozen demands that are so absurdly unreasonable that they have been called a regime change policy in all but name. The sanctions which have already been implemented have already badly hurt the Iranian economy, the sting of which is being felt first and foremost by Iran’s poor and sickly.

In an article titled “Iran’s poor to bear brunt of Trump’s oil sanctions“, Financial Times documents how poor Iranians are already strained to the breaking point from the cutbacks they’ve had to make in food and groceries. An article titled “In Iran, US sanctions are being felt, with harsher measures to come” by the Christian Science Monitor details difficulties Iranian charities are having getting medicine to sick children, including chemotherapy treatment, having already run out of four life-saving drugs. In an article titled “US fails to shield humanitarian trade with Iran as sanctions loom“, Al Monitor details the way humanitarian aid, while ostensibly exempt from the sanctions, has been severely impacted by their economic aspect because humanitarian aid costs money. The Wall Street Journal further explains the effects of America’s economic warfare on ordinary Iranian civilians in an article titled “Iran Moves to Shelter Millions as U.S. Sanctions Bite“.

This is before the US implements a new level of attacks upon Iran’s oil industry, a primary economic lifeline, which is scheduled to begin on November fifth. If Iran can’t find a way to get around these crushing sanctions in a significant way, many civilians already stretched far too thin will be pushed past the breaking point.

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Iran’s Worst Nightmare Is Coming True

Iran’s Worst Nightmare Is Coming True

Refinery

In what must seem like a nightmare scenario for Iran, not only is another U.S. president leveling sanctions against its economy, and particularly that economy’s lifeblood, its oil sector, but the current U.S. president has admittedly made it his mission to drive Tehran to its knees over what he sees as non-compliance over the 2015 nuclear accord between western powers and Tehran.

As recently as the start of this month, the oil markets narrative was that perhaps President Donald Trump had pushed a bit too hard by reimposing sanctions against Iran. Oil markets, for their part, were jittery while both global oil benchmark Brent and U.S. Benchmark West Texas Intermediate (WTI) futures hit four-year highs largely on supply concerns. Some predicted that $100 per barrel oil by the end of the year was imminent, while Tehran maintained a defiant tone, stating that neither Saudi Arabia nor OPEC would be able to pump enough oil to compensate for the loss of Iranian barrels, estimated between 500,000 bpd and 1 million bpd.

Now, what a different just a few weeks can make. Oil prices are now trending downward, falling for a third consecutive week as global stock markets tumbled and oil markets focused on a weaker demand outlook for crude going forward. Brent crude fell 2.7 percent last week and is down 10.5 percent from its October 3 high of $86.74. WTI ended the week down some 2.2 percent and has now dropped around 12 percent from its recent high of on October 3. Moreover, in a sign of things to come, hedge-fund and money managers are trimming their bets that crude oil prices will rise.

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Why Oil Prices Could Still Go Lower

Why Oil Prices Could Still Go Lower

Oil

Crude markets had a panic attack in August and September that sent prices soaring. Sanity is now returning. Prices have fallen but are likely to move even lower over the next few months.

The panic attack was caused largely by Trump’s August 7 announcement that sanctions would be re-imposed on Iran. Anxiety about the effect on oil supply and prices was reasonable but the reaction was hysterical.

From August 15 to October 1, Brent December futures spreads increased $3.01 (175 percent) from $1.72 to $4.73. Brent prices increased $15.53 (22 percent) from $70.76 to $86.29 (Figure 1).

(Click to enlarge)

Figure 1. Brent Dec spreads collapsed from $4.73 to $1.52 since Oct 1 & are now less than when price rally began after announcement to re-impose Iran sanctions in mid-August. Front-month Brent down from $86.29 to $76.17 but still higher than $70.76 Aug 15 price. Source: Barchart and Labyrinth Consulting Services, Inc.

Then spreads and prices collapsed. By October 24, spreads had fallen from $4.73 to $1.52, less than when the price rally began. Front-month Brent price decreased from $86.29 to $76.17. Prices and spreads recovered slightly on October 24 closing at $76.89 and $1.76, respectively.

It seems unlikely that the correction is over. The timing depends on how long it takes for markets to fully recover from what Vitol’s Ian Taylor calls the supply fear factor. After 6 weeks of fear, markets must adjust to the reality that the “oil market is adequately supplied for now.”

Clearly markets are concerned about more than just Iran. Falling or uncertain output from the problem children Venezuela, Libya and Nigeria, and take-away constraints from the Permian basin are critical.

Iran, however, is different because it is a completely artificial supply crisis. It was a choice made by Donald Trump and his advisors. Markets are used to the uncertainty of its problem children but not to the apparent certainty of an executive decision. The reaction was consistent with the cause—certain and linear.

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Big Oil Walking A Tightrope As Prices Rise

Big Oil Walking A Tightrope As Prices Rise

offshore arctic

Supermajors have had a great year so far, and their third-quarter results, to be released over the next couple of weeks, are likely to strengthen this impression. But this does not necessarily mean that investors will reward them. Investors have become a lot more careful in the past few years, and chances are they will want to see more proof of post-crisis flexibility and strict cost discipline before stock prices reflect an increase in trust.

On the face of it, Exxon, Shell, Chevron, and their likes have everything going for them: oil prices are higher, free cash flow is coming in at higher rates, and there have even been a few discoveries, most notable among them Exxon’s 4-billion-barrel elephant off the coast of Guyana. But Big Oil still needs to be cautious.

In a recent article for 24/7 Wall Street, its senior editor Paul Ausick noted the heightened prospects of even higher oil prices after a Reuters report revealed that OPEC has been having trouble lifting production by the promised 1 million bpd. From May to September, the cartel’s combined production plus Russia’s had fallen well short of that figure because of production declines in Venezuela, Iran, and Angola, among others. These, the internal OPEC document that Reuters saw, offset some substantial output hikes from Saudi Arabia, Russia, the UAE, Iraq, and Kuwait.

What this means is that there seems to be less spare capacity than optimists believed. This, in turn, means prices are likely to climb further, despite a fresh assurance from Treasury Secretary Steven Mnuchin that traders have already factored in the U.S. sanctions against Iran. Mnuchin’s warning that Washington will insist on importers cutting Iranian crude imports by more than 20 percent most certainly has not helped rein in prices, though its effect has yet to be fully acknowledged.

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The Middle East, Not Russia, Will Prove Trump’s Downfall

The Middle East, Not Russia, Will Prove Trump’s Downfall

Photo Source The White House | CC BY 2.0

The Middle East has a century old tradition of being the political graveyard of American and British political leaders. The list of casualties is long: Lloyd George, Anthony Eden, Jimmy Carter, Ronald Reagan, Tony Blair and George W Bush. All saw their careers ended or their authority crippled by failure in the region.

Will the same thing happen to Donald Trump as he struggles with the consequences of the alleged murder of Jamal Khashoggi? I always suspected that Trump might come unstuck because of his exaggerated reliance on a weak state like Saudi Arabia rather than because of his supposed links to Russia and Vladimir Putin. Contrary to the PR company boosterism of Crown Prince Mohammed bin Salman (MBS) and his ambitious projects, Saudi Arabia has oil and money, but is demonstrably ineffective as an independent operator.

The Middle East disasters that toppled so many Western leaders have a certain amount in common. In all cases, the strength of enemies and the feebleness of friends was miscalculated. Lloyd George was forced to resign as prime minister in 1922 because he encouraged the doomed Greek invasion of Anatolia which almost led to a renewed Turkish-British war.

George W Bush and Tony Blair never understood that the occupation of Iraq by American and British ground forces had no support inside Iraq or among its neighbours and was therefore bound to fail. A British military intelligence officer stationed in Basra told me that he could not persuade his superiors of the potentially disastrous fact that “we have no real allies anywhere in Iraq”.

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Facebook’s New Troll-Crushing “War Room” Confirms Surveillance By Corporation Is The New America

Facebook on Wednesday briefed journalists on its latest attempt to stop fake news during the election season, offering an exclusive tour of a windowless conference room at its California headquarters, packed with millennials monitoring Facebook user behavior trends around the clock, said The Verge.

This is Facebook’s first ever “war room,” designed to bring leaders from 20 teams, representing 20,000 global employees working on safety and security, in one room to lead a crusade against conservatives misinformation on the platform as political campaigning shifts into hyperdrive in the final weeks leading up to November’s US midterm elections. The team includes threat intelligence, data science engineering, research, legal, operations, policy, communications, and representatives from Facebook and Facebook-owned WhatsApp and Instagram.

“We know when it comes to an election, every moment counts,” said Samidh Chakrabarti, head of civic engagement at Facebook, who oversees operations in the war room.

“So if there are late-breaking issues we see on the platform, we need to be able to detect and respond to them in real time, as quickly as possible.” 

This public demonstration of Facebook’s internal efforts comes after a series of security breaches and user hacks, dating back to the 2016 presidential elections. Since the announcement of the Cambridge Analytics privacy scandal in March, Facebook shares have plunged -14.5% It seems the war room is nothing more than a public relations stunt, which the company is desperately trying to regain control of the narrative and avoid more negative headlines.

The war room is staffed with millennials from 4 am until midnight, and starting on Oct. 22, social media workers will be monitoring trends 24/7 leading up to the elections. Leaders from 20 teams will be present in the room. Workers will use machine learning and artificial intelligence programs to monitor the platform for trends, hate speech, sophisticated trolls, fake news, and of course, Russian, Chinese, and Iranian interference.

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War Plans on Iran Mean Trump and Saudis Coordinating Cover-up of Khashoggi Killing

War Plans on Iran Mean Trump and Saudis Coordinating Cover-up of Khashoggi Killing

War Plans on Iran Mean Trump and Saudis Coordinating Cover-up of Khashoggi Killing

Finally, nearly three weeks after what most of the world suspected to be a foul murder, the Saudi regime has officially admitted that Jamal Khashoggi was killed in its consulate in Istanbul, Turkey. No sooner had the Saudis issued their latest lie to cover up previous lies, US President Trump was lending White House prestige to the travesty.

Trump said the belated Saudi version of what happened was “credible”. He also welcomed as “good first steps” the Saudi arrest of 18 individuals and sacking of several top officials.

The Saudi “explanation” of Khashoggi’s death stretches credulity to snapping point. They are saying he was killed after a fist-fight broke out in the consulate. The Saudis are also claiming the de facto ruler of the kingdom, Crown Prince Mohammed bin Salman (MbS), did not know anything about the murder, its planning or aftermath. Recall that MbS asserted in an interview with Bloomberg on October 5 that Khashoggi had walked out of the consulate the same day he arrived.

Now the Crown Prince has been appointed by his father, aging King Salman, to head up a committee to oversee an overhaul of the royal court’s intelligence organization. The former deputy head of intelligence, Ahmed al-Assiri, is one of those senior aides who has been sacked and set to take the rap.

In other words, the heir to the throne, MbS, is being absolved of any responsibility in the scandal. The sacked aides and arrested men, who are believed to include the 15-member team that went to Istanbul to intercept Khashoggi, are being made the scapegoats.

It is customary Saudi treachery at work. There is simply no way that a 15-member team that included top bodyguards of the Crown Prince could have carried out the Khashoggi abduction and killing without the monarch’s knowledge and sanction.

US intelligence intercepts have claimed to show that MbS was indeed involved in the planning of Khashoggi’s doom. It is simply preposterous that the 15-member hit squad went “rogue” and carried out a murder on their own initiative.

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US Is Negotiating With SWIFT To Disconnect Iran From Network

Treasury Secretary Steven Mnuchin said that unlike Obama’s 2013 Iran blockade, it would be harder for countries to get waivers on Iran oil sanctions as the US is already working on disconnecting Iran from the SWIFT network and dismissed concerns that oil prices could rise, saying the market had already factored in the output losses.

Speaking in an interview with Reuters in Jerusalem on Sunday at the start of a Middle East trip, Mnuchin said countries would have to reduce their purchases of Iranian oil by more than the roughly 20% level they did from 2013 to 2015 to get waivers. “I would expect that if we do give waivers it will be significantly larger reductions,” said the US Treasury Secretary.

To achieve the US goal of further isolating Iran from the global financial community, Mnuchin said that the U.S. Treasury was already in negotiations with the Belgian-based financial messaging service SWIFT which intermediates the bulk of the world’s cross-border dollar-denominated transactions, on disconnecting Iran from the network. Washington has been pressuring SWIFT to cut Iran from the system as it did in 2012 before the nuclear deal.

Validating European concerns that the US can and will weaponize the dollar at will and use the reserve currency as a global bargaining chip, Mnuchin’s threats confirmed that although the United States does not hold a majority on SWIFT’s board of directors, the Trump administration could impose penalties on SWIFT unless it disconnects from Iran, pressuring it to comply with US demands.

“I can assure you our objective is to make sure that sanctioned transactions do not occur whether it’s through SWIFT or any other mechanism,” he said, “Our focus is to make sure that the sanctions are enforced.”

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Germany Clashes With The U.S. Over Energy Geopolitics

Germany Clashes With The U.S. Over Energy Geopolitics

Nord Stream 2

The United States and the European Union (EU) are at odds over more than just the Iran nuclear deal – tensions surrounding energy policy have also become a flashpoint for the two global powerhouses.

In energy policy, the U.S. has been opposing the Gazprom-led and highly controversial Nord Stream 2 pipeline project, which will follow the existing Nord Stream natural gas pipeline between Russia and Germany via the Baltic Sea. EU institutions and some EU members such as Poland and Lithuania are also against it, but one of the leaders of the EU and the end-point of the planned project—Germany— supports Nord Stream 2 and sees the project as a private commercial venture that will help it to meet rising natural gas demand.

While the U.S. has been hinting this year that it could sanction the project and the companies involved in it—which include not only Gazprom but also major European firms Shell, Engie, OMV, Uniper, and Wintershall—Germany has just said that Washington shouldn’t interfere with Europe’s energy choices and policies.

“I don’t want European energy policy to be defined in Washington,” Germany’s Foreign Ministry State Secretary Andreas Michaelis said at a conference on trans-Atlantic ties in Berlin this week.

Germany has to consult with its European partners regarding the project, Michaelis said, and noted, as quoted by Reuters, that he was “certainly not willing to accept that Washington is deciding at the end of the day that we should not rely on Russian gas and that we should not complete this pipeline project.”

In July this year, U.S. President Donald Trump said at a meeting with NATO Secretary General Jens Stoltenberg that “Germany is a captive of Russia because they supply.”

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Opinion: Powell has lost his North Star, and the Fed is flying blind

The Fed risks raising interest rates too much as the compass spins wildly

STAN HONDA/AFP/Getty Images
Stars appear to rotate around Polaris, the North Star, in this time exposure of the Kitt Peak National Observatory near Tucson, Ariz.

Federal Reserve Chairman Jerome Powell is in an unenviable position. Folks expect him to fine-tune interest rates to keep the economy going and inflation tame but he can’t make things much better — only worse.

Growth is nearly 3% and unemployment is at its lowest level since 1969. What inflation we have above the Fed target of 2% is driven largely by oil prices and those by forces beyond the influence of U.S. economic conditions — OPEC politics, U.S. sanctions on Iran, and dystopian political forces in Venezuela and a few other garden spots.

When the current turbulence in oil markets recedes, we are likely in for a period of headline inflation below 2%, just as those forces are now driving prices higher now.

Overall, long-term inflation has settled in at the Fed target of about 2%. The Fed should not obsess about it but keep a watchful eye.

Amid all this, Powell’s inflation compass has gone missing. The Phillips curve, as he puts it, may not be dead but just resting. To my thinking, it’s in a coma if it was ever alive at all.

That contraption is a shorthand equation sitting atop a pyramid of more fundamental behavioral relationships. Those include the supply and demand for domestic workers and in turn, an historically large contingent labor force of healthy prime-age adults sitting on the sidelines, the shifting skill requirements of a workplace transformed by artificial intelligence and robotics, import prices influenced by weak growth in Europe and China, and immigration.

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