Morning Briefing: Brent oil dropped below $16 to its lowest level since 1999

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Vrasidas Neofytou
Head of Investment Research

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Morning Briefing: Brent oil dropped below $16 to its lowest level since 1999

The crude oil prices lost another 20% on Wednesday morning, extending the oil market sell-off into a third day. The WTI price collapsed by 40% on Tuesday on oversupply concerns and lack of demand, while Brent oil price dropped below $16 per barrel, to its lowest level since 1999.

Coronavirus Update:

Global cases: At least 2,561,044.
Global deaths: At least 176,984.
Most cases reported: United States (823,786), Spain (204,178), Italy (183,957), France (159,297), and Germany (148,291).

Crude oil extended losses by 20% for third day in row

Brent oil price fell below $16 per barrel this morning hitting its lowest level since 1999. The international index has lost almost 80% of its value since it peaked at $72 during the Middle East tension at the beginning of 2020.

Fig 1. Brent oil price, Daily chart

The WTI oil price hit $10 intraday low this morning as investors worry for the oversupply condition in the US energy market while the local storage tanks are running our of space.

Global Equities:

US stock markets experienced sharp declines, falling more than 3% on Tuesday. The massive losses in the energy stocks triggered a risk aversion sentiment across the board for a second day in row. Dow Jones index closed at 23.018, -2.7%, while the S&P 500 and Nasdaq lost more than 3%.

Fig.2, Dow Jones index, 1-hour chart

However, the Dow Jones futures bounced up 1% this morning, implying an opening near 23.250, after Senates passed a $484 billion coronavirus relief package for small businesses and hospitals.

Asian stock markets fell on Wednesday morning on a risk-off sentiment, following the overnight losses from Wall Street. Nikkei index led the losses with 2%, while Kospi and Hang Seng followed with 1% losses.

Safe Havens:

The US Treasury Bills rallied to 1-month highs after investors turned away from risky stocks and jumped into the safety of bonds. The U.S. 10-year rate fell to 0.52%, hitting its lowest level since March, while the 30-year bond yielded 1.13%.

However, the Gold price failed to surge yesterday, losing its role as a safe-haven asset. The stronger dollar and rising bonds weighted on the price of the yellow metal which settled at $1.685/oz. It is worth mentioning that despite the ugly market developments and sell-off in energy and equities, the precious metals prices were unable to attract safety bids.

Forex Market:

The DXY-dollar index rose near monthly highs of 100.30 against a basket of currencies getting support from safe haven flows. The EUR/USD remained below 108.5 while USD/JPY traded near 107.60.

Fig.3, USD/CAD pair, Daily chart

Investors fled from crude oil related currencies such as the Canadian dollar, Russian Rubble, Mexican Peso and Norwegian Crone to the safety of the greenback. USD/CAD rose to monthly highs of 1.43 as Canadian economy has been suffering from the collapse of energy and industrial metal prices.

Economic Calendar for April 22, 2020 (GMT+ 3:00):

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