getting too many questions on oil, so a few quick observations:
First, the move in the active front month contract is totally extreme, but not reflected in the rest of the curve. Fourth contract is well above the March 17 low.
First, the move in the active front month contract is totally extreme, but not reflected in the rest of the curve. Fourth contract is well above the March 17 low.
Second: Oil linked equities actually traded higher on the day on Monday; a fairly remarkable divergence from the active future price, but suggesting that equity traders are really not changing their medium term views much based on the collapse in prices today
Thinking about the macro implications. I think it is important to think about which countries will be 'priced out' and will countries will continue to produce at <30$/barrel, and even <$20/barrel. (oil prices will not stay negative for that long, but could stay <$30 for long).
Looking at production cost: The Middle-East and Russia seem likely to continue to produce (there is a reason Saudi was the country to deliver a supply INCREASE initially).
Countries with a real challenge: Norway, Colombia, Brazil, Malaysia, and perhaps the US too.
Countries with a real challenge: Norway, Colombia, Brazil, Malaysia, and perhaps the US too.
This chart gives a sense of what the damage caused to countries' current account from the price declines (the total effect will be bigger/worse when adding the volume decline, which will be skewed towards high cost producers)
I still find it amazing that HY credit spreads (even if they have gone up a bit are barely higher than during the mild oil price drop of 2015/2016. But that is just me
Maybe the expectation of an 'energy bail-out' is so elevated that we do not have normal price discovery in certain energy linked assets (although in oil linked FX crosses we do). I will leave it at that.
#CrudeOil
#CrudeOil
