Global Markets and the Drop in U.S. Crude Oil Prices

In recent days global markets have traded in a noticeably mixed fashion. The prices of stocks and equities are moving up and down without showing any particular, consistent direction.

This is – unsurprisingly – largely as a result of the continuous spread of the coronavirus, which keeps overcoming signs of progress in some of the worst affected countries around the world

Global stocks had received a boost last week after a report that some patients with severe virus symptoms were recovering after using ‘remdesivir,’ a Gilead Sciences drug, however the respite was shortlived.

Meanwhile, future markets are sending mixed messages, predicting a positive opening for Europe but a mild slump on Wall Street. True to this projection, European stocks opened slightly higher on Monday despite coronavirus and the news of the sharp fall in US oil prices. The STOXX600 move up around 0.4% not long after opening, with almost all sectors in the green.

Moreover, the high move in Europe comes after Asia-Pacific stocks mixed thanks to China reducing its standard lending rate. China’s one-year loan prime moved to 3.85% from 4.05% and its five-year loan top rate fell as well from 4.75% to 4.65%.

Asia-Pacific market
China reduced its standard lending rate on Monday

The cut in the loan prime rate benchmark will be the second one for 2020.

A Small Summary From the Global Market:

  • The S&P/ASX 200 dropped 2.45% to close at 5,353.00;
  • The US dollar index was at 99.919 after surpassing the 100-mark last week;
  • The Shanghai composite gained 0.5% to around 2,852.55, while the Shenzhen composite edged 1.005% higher to 1,767.86.
  • The Japanese yen traded at 107.78 per dollar after touching levels below 107.4 in the previous trading week.
  • The MSCI Asia ex-Japan index dropped by 0.66%.

U.S. crude prices plummeted on Monday as the coronavirus pandemic continues to drastically impact global oil demand. Prices on the May contract (CLK20) for West Texas Intermediate crude futures dropped by 18% to $14.93 per barrel, the lowest since it was traded at $14.40 in March 1999.

U.S. oil prices are in free-fall
U.S. oil prices are in free-fall

Furthermore, ANZ’s Daniel Hynes, a senior commodity strategist, said on Monday that one of the reasons behind the fall in crude prices was the impending expiration of the May futures contract (on this coming Tuesday). According to Hynes,

“There will be traders in the market who only want to trade the paper, so they will rollover into the next futures contract. That means selling the May contract and buying the June… There are also traders who are buying for clients who trade the physical. So they hold the contract to expiry and deliver the crude or take up the crude if they are on the other side of the trade.”

Daniel Hynes, senior commodity strategist at ANZ

The U.S. crude is currently trading for as low as $12-13 per barrel, in large part due to the collapse in demand and also a chronic lack of storage.

U.S. crude oil prices are as low as they've been since 1999
U.S. crude oil prices are as low as they’ve been since 1999

According to Steve Puckett, executive chairman of TRI-ZEN International (an energy consultancy) Global oil storage is:

“… rapidly-exceeding 70% and approaching operating at maximum.”

Tri-ZEN International executive chairman Steve Puckett



Leave a Reply

Your email address will not be published.