Morning Briefing: Crude oil has lost 40% since Monday on storage and demand fears

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Vrasidas Neofytou
Head of Investment Research

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Morning Briefing: Crude oil has lost 40% since Monday on storage and demand fears

The crude oil markets lost 15% this morning, extending Monday’s 25% decline amid ongoing fears for record low oil demand, oversupplied conditions and lack of storage space. WTI price dropped near $11 per barrel, while Brent crude broke below $19.

Coronavirus Update:

Global cases: More than 3 million
Global deaths: More than 210,800
Most cases reported: United States (987,022), Spain (229,422), Italy (199,414), France (165,962), and Germany (158,434).

Crude oil:

The WTI June contract extended yesterday’s massive declines, after the United States Oil Fund, which trades under the ticker ‘USO’ and is popular with retail investors, said it would sell all of its contracts for June delivery beginning Monday, in favour for longer-term contracts. The fund wants to avoid similar massive losses as it had experienced last Monday-Tuesday during the expiration of the WTI May contract when the price dropped as low as negative $40.

Fig.1: WTI crude oil price, 2-hour chart

The WTI price has lost nearly 50% since it bounced last week after President Trump’s tweeted on the Persian Gulf’s tension, indicating how ugly are the fundamentals of the energy market right now. WTI and Brent are both on pace for their fourth straight month of losses for the first time since 2017.

Global Equities:

US stock markets surged on Monday on plans for partial re-opening of the economy. The risk sentiment has been improved after many US States showed a willingness to allow some economic activities to come back online.

The Dow Jones index gained 1.7%, closing above 24.000, while the S&P 500 and Nasdaq advanced by 1.5% and 1.1%, respectively.

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

Asian markets were higher this morning, following the overnight gains on Wall Street coupled with the prospect of further stimulus from the Bank of Japan. The Chinese indices led the gains by 1% while Kospi and Nikkei moved slightly higher.

Safe Havens:

Gold and Bonds fell during Monday’s session as investors were moving to riskier assets and thus reducing the demand for safe havens. Gold price broke below the key support level of $1.700 per ounce, losing more than $50/oz since it had recently topped this month.

The yield on the benchmark 10-year Treasury note rose to 0.62% while the yield on the 30-year Treasury bond was up at 1.19%.

Forex Market:

The Australian dollar was stronger across the board yesterday, in response to the risk-on sentiment in the forex market. The AUD/USD climbed to a 1 month high at 0.6450 as the government would ease social distancing rules this week.

Fig.3: AUD/USD pair, Daily chart

The US dollar has lost some ground against major currencies since last week as more investors have been moving into riskier currencies. The DXY-dollar index struggles to hold above the key support level of 100, EUR/USD rose near 1.0830, while USD/JPY traded near monthly lows.

Economic Calendar for April 28, 2020 (GMT+ 3:00):

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