Black gold barely survives Black Monday – Market Analysis – April 20

Black gold barely survives Black Monday – Market Analysis – April 20

History in the making for global Oil markets, futures contracts first time in negative price territory

The event of the day has been, without a doubt, the spectacular collapse of the price of Oil.

The culprit has been the WTI (West Texas Intermediate) futures contract with expiration in May that has dragged down the cost of almost all physical Oil in the United States.

WTI futures contract May ended at -34.88$, the first time in history that a future Crude Oil was trading negative, and the price of physical crude Oil has also reached levels ranging from -49.63$ in the case of Alaska North Slope to -18.63$ from Heavy Louisiana Sweet.

The leading cause of this dysfunctional behavior is the excess of Crude Oil in stock due to the enormous drop in demand and the lack of storage capacity. Given the proximity of the expiration of the contract and the inability to cope with the delivery of the underlying asset, the sale has been forced and massive until reaching negative prices.

This enormous downward pressure has affected the rest of the futures contracts, although evidently not proportionally.

BrentOil was trading until $25.28 near the last low levels of $24.28. The general opinion of the market is that as long as the supply and demand conditions do not change, crude will continue to press down.


This is the technical explanation of an unusual market movement that contradicts economic rationality, but behind there lies a structural problem of more considerable significance that goes beyond the specific confrontation of two major producers that are Russia and Saudi Arabia. The colossal drop in demand caused by the coronavirus crisis that will lead to collapses in the GDP of the leading countries of the world is not yet clearly reflected in the stock markets.

Part of the reason for the resilience of the stock markets is the good behavior of technology stocks that are initially favored in the current circumstances, such as Netflix and Amazon, and the hope that the economic support and stimulus packages that the American government provided are going to be enough to avoid a chain of bankruptcies. But the magnitude of the crisis is still unmeasurable, and its effects will not only be seen on the supply side but also on that of domestic consumption, which will be depressed for a long and still unknown period.

This situation will not be local but global in nature, so the uncertainty as to when and how a recovery will occur is even more considerable.

If this were not enough, everything indicates that a large-scale confrontation can take place between the two great powers, the US and China, say market analysts.

Global indices

We have learned that the US Senators unveiled a bill to hold China accountable for coronavirus.

If the so-called "trade war" led to increased risk aversion with falling stock markets for fear of a substantial loss in the global volume of trade, a direct political confrontation plus the slowdown effect of the crisis should raise uncertainty global at maximum levels and risk appetite would be greatly reduced.

This reasoning is shared by a large part of the leading investors in the market. However, there are still those who expect a rapid recovery, and this bipolarity is undoubtedly one of the reasons why the stock markets have not yet suffered significant losses.

USA500 has fallen during the session mainly due to the tension caused by the Crude Oil market, and it needs to break below 2,784 to resume the downtrend that started at the beginning of the crisis. The economic data that will be published will be relevant in this regard, the PMIs of Europe and the United States are to be published, which will give us a more unambiguous indication of the state of the economy.



Le informazioni contenute nel presente documento sono redatte da Miguel A. Rodriguez e non costituiscono né devono essere interpretate come suggerimenti di investimento. Le informazioni di cui al presente documento costituiscono comunicazioni di marketing generali a scopo informativo e, in quanto tali, non sono state preparate nel rispetto dei requisiti di legge che promuovono le ricerche di investimento indipendenti. Inoltre, non sono soggette ad alcuna limitazione sulle transazioni condotte in anticipo rispetto alla divulgazione delle ricerche di investimento in questione.

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