Tuesday, April 21, 2020

WTI Crude Oil Tumbles by an Unprecedented 300%

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What’s happening: US crude oil prices plummeted an unprecedented 300% on Monday following a massive decline in overall demand.

What happened: Traders witnessed a record decline in WTI oil prices yesterday, with the May contract plunging into negative territory for the first time in history.

Markets reacted to weakened oil demand and a shortage of storage locations globally. But these weren’t the only reasons for the dramatic decline in the price of oil futures.

Why it matters: The massive slide in US oil prices was driven mainly by traders fleeing May futures ahead of its expiration today and piling into June contracts. So much so that there were no buyers for the May contract.

News of the storage capacity at Cushing, Oklahoma likely becoming full soon added more pressure on oil prices.

WTI contract for May tumbled 306% to settle at a discount of $37.63 per barrel on Monday, after falling to a record low of -$40.32 per barrel earlier in the session. Brent crude declined 9% to settle at $25.57 a barrel in the last session.

After weeks of deliberation, OPEC+ agreed to lower production by 9.7 million barrels per day starting May. Major oil firms in the US have also scaled back their production capacity with demand drying up. Yet, this massive production cut now seem insufficient to bring an equilibrium in the oil market, balancing supply with weakening demand, given projections of global demand declining by at least 30% in April.

Crude oil for May delivery recovered some of its losses in yesterday’s session during the Asian session this morning. Oil prices climbed 104% to $1.48 per barrel.

What to watch: After the COVID-19 crisis eases, global demand for oil could grow with a resumption in travel and a pick-up in economic activity. However, that recovery is likely to be slow. In the interim, oil prices are expected to trade at record low levels. WTO oil prices may remain volatile in coming months, with no storage capacity at Cushing, Oklahoma.

The Markets Today

     

Investors will be focusing on European stocks today, amid the latest coronavirus developments

Context: European stocks closed slightly higher on Monday after a volatile session of trading. The latest coronavirus data showed a further slowing down in the spread of the disease.

Details: Global growth of new coronavirus cases slowed to 2.3%, while new-case growth in the US also slowed to 3.3%, Deutsche Bank said in a note on Monday.

The slow reopening of the European economy continued, with Germany allowing small shops to open their shutters. The European Council is likely to announce a recovery fund this week. While the US government has made sweeping efforts to deal with the consequences of the pandemic, its fund for small businesses now needs replenishing. US House Speaker Nancy Pelosi said she expects lawmakers to announce a deal shortly for increasing the lending fund to help small businesses weather the coronavirus shutdowns.

The pan-European Stoxx 600 index cut back earlier losses to close higher by 0.67% on Monday. The healthcare sector was the top performer in yesterday’s trading session, while auto shares declined 1%. The FTSE 100 gained 0.45%, while German 30 index surged 0.47%.

Shares of Philips climbed more than 6% after the company reported its first-quarter results and announced plans to pay dividends in shares. Vivendi’s stock gained by more than 4% after the company reported a rise in its revenue for the first quarter.

The Eurozone reported an increase in its trade surplus increased to €23 billion in February, versus a surplus of €18.5 billion in the same month last year.

What to watch: Investors will be hoping for a further slowdown in daily coronavirus numbers. The number of positive COVID-19 cases in Italy has surpassed 181,220 with around 24,110 deaths. Spain has so far confirmed more than 200,210 cases with 20,850 fatalities. France has also confirmed more than 156,480 coronavirus cases as per the latest data.

Markets await the ZEW Economic Sentiment index from the Eurozone, along with some reports from countries in the region. The ZEW Indicator of Economic Sentiment for the Eurozone had dipped by 59.9 points to a reading of -49.5 in March.

Other Markets: US indices closed lower on Monday, with the Dow, S&P 500 and Nasdaq 100 down by 2.44%, 1.79% and 1.03%, respectively

Support & Resistances
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market snapshot

     

Futures at 0400 (GMT)

News shaping
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What else to watch today

     

UK’s unemployment rate, South Africa’s leading business cycle indicator, Italy's construction output, Spain’s balance of trade, Germany’s Zew economic sentiment index, Canada’s retail sales as well as the US Redbook index and existing home sales.