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Good morning, Bull Sheeters. It’s safe (for now) to look at the screen again. Equities may be trading lower, but at least oil markets are no longer in upside-down world. Still, the uncertainty is dragging just about everything down.
Let’s check on what’s moving markets.
The May contract for WTI futures expires today, and that’s got to be good news for traders. Yesterday’s plunge was “like trying to explain something that is unprecedented and seemingly unreal,” Louise Dickson, an oil analyst at Oslo based Rystad Energy, told Fortune‘s Katherine Dunn last night.
When WTI sunk below 10 bucks a barrel yesterday, alarm bells went off everywhere. And then the price just kept falling. At one point, it cost less than a six-pack of Budweiser. Minutes later, less than a gallon of milk. Then crude was worth less than the barrel holding it, giving rise to some classic comments from energy Twitter yesterday.
The barrel-half-full crowd would say these are just contracts, that it’s the fault of technicals, that it doesn’t reflect the true price of physical stocks. But even before those contracts hit negative $38.45/barrel yesterday, it became clear this was a toxic asset. The ramifications are being felt well beyond the May contracts. Prices on July and August futures are also under pressure this morning, trading at sub-$30. June, meanwhile, fell below $20/barrel. The problem is we’re running out of places to store the stuff. It’s a textbook market crash.
Nobody is suggesting negative oil is the new normal, but the ripple effects will be felt well beyond the oil patch. It took down the equities markets yesterday, and it’s doing the same today. It’s impacting emerging markets and virtually every commodity not named gold. The concern is it will cause a wave of layoffs and bankruptcies in oil country, and that will become a political issue, too.
One of the startling things about this recent two-week bull run in equities is that it occurred as energy prices were collapsing. Usually, they trend up and down in the same direction. That makes sense. When the economy is running on all cylinders, energy prices go up. That decoupling pattern finally broke yesterday. Once oil crashed below $10, the gravitational pull proved too much for the S&P 500, and the Dow, and even the Nasdaq. The sell-off began in full.
“What’s very apparent is someone lost their shirt,” Bjarne Schieldrop, chief commodities analyst at SEB in Oslo, told Fortune‘s Dunn.
He was speaking of oil traders. But the concern amid the barrel-half-empty crowd is that other investors could fast become shirtless, too.
While oil prices were tanking yesterday, news broke here in Italy that the number of active coronavirus cases fell over the previous 24 hours. It’s the best news we’ve had in weeks. And now the government is getting serious about officially easing lockdown measures in two weeks time. May 4 will be a manic Monday around here.
Have a nice day, everyone. I’ll see you here tomorrow.
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