Coronavirus Vs. Crude Prices

As of Friday 3 April, there were more than 1 million reported cases on covid-19 discovery. Till date, US country has been ranked as First with more than 240,000 cases; Italy has more than 115,000 cases; Spain has more than 110,000 cases; Germany has more than 84,000 cases; China has more than 82,000 cases. On worldwide basis, death toll has hit 52,800 numbers from this pandemic!

It is very clear that the world has moved into a recession due to the impact of coronavirus outbreak. Almost all countries in the world has called a stop in their manufacturing during the Q1 seasons. Global supply chain has been crippled and shortage of raw materials have affected the production of multi-channel products!

Adding into the global slowdown, Russia and Saudi have erupted a price war on Crude prices that further put the market into a wintering season. As Crude is the basic driving forces of all industries, it may be good to have a lower cost of energy prices in a normal economy; however, the current low demand in Crude prices have triggered a high unemployment rate in the related Oil and Gas industry and also cause a heavy impact to the OPEC and Russia countries.

In the ex-territory of OPEC and Russia markets, US has been recognized as the largest oil exporter for past 5 years as the cost of producing the large reserve basin in shale oil has added the advantage to American Government. In short, the US has benefited a lot when they have kept increasing the sales volume while OPEC has been negotiating for cutting supply since 3 years ago.

Now, the US has gone into deep doldrums of spiral recession due to the pandemic outbreak. Due to the steep fall of Crude prices, the American Government has been derived of this benefits despite the huge reserve of shale oil sitting in Texas, Dakota and Colorado.

Last Wednesday, President Trump tweeted he has talked to Saudi and Russia leaders to end the price war. As usual, the essence of his message has pacified the traders into believing the rivals have agreed to sort out the difference. Following that, WTI Crude prices jumped 20 percent to USD25 /barrel. Ironically, spokesmen from the two countries have not released any press statement till now.

All oil producing countries know that US is the largest silent winner if Crude prices recover above USD30 /barrel. The decision now is to check if Saudi and Russia want to "thrash" US in their global oil business before recovering the output, or the OPEC and Russia go back to a struggling situation where everyone is trying to sell the most oil in a weak demand market.

In our opinion, oil prices will not sustain the recovery in Q2 season. The reason is due to faltering pace in manufacturing sectors worldwide and the standstill of almost global aviation industry. In fact, it will not be surprising to see a dip of WTI Crude prices going below USD20 /barrel in Q2 season before the market stabilizes again at USD22 /barrel level.

Stay vigilant in your trading strategy. Be prudent.


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