Record production surplus. Will oil be sold for pennies?

By 24/03/2020News
Morning Stock News

Gold   1562,23
(-0,20%)

EURUSD   1,0782
( +0,35%)

DJIA  19125,50
(+1,61%)

OIL.WTI  24,325
(+0,85%)

DAX   8812,25
(+ 0,03%)

All major countries are trying to save their markets. In the United States, Republicans and Democrats are fighting again. Democrats have blocked the package of market stimulation for 2 trillion dollars, which is about 10% of GDP. Markets reacted sharply to this situation and lost about 3% during the trading session.


Chart of the Day – Brent
Chart of the Day - Brent

Germany is taking a package of measures to combat the coronavirus and wants to allocate about 10% of GDP. In Germany, the solutions are easier to find and this aid will soon arrive.
Japan has behaved interestingly. The government said that the Olympic Games are likely to be postponed, but not cancelled completely, which had a very positive impact on the Nikkei index. Overall, Asia is doing better with the virus now, so markets are feeling more stable. It is difficult to give any forecasts in this situation, but for now everyone is waiting at least for stabilization. The world economy has never seen such stimulus measures, and one can only guess what they will lead to.


US Dollar

On Monday, the US Federal Reserve announced another measures to stimulate the economy and support companies. They open new credit lines and buy bonds. It is planned to inject about $1 trillion more in the near future. It’s a huge amount of money, but looking at the markets, we see that these actions are not yet significantly affect currency rates and the dollar continues to dominate. Still, the decisive actions of the Fed give hope to investors and increase demand for the dollar. Therefore, now it is worth considering buying the U.S. dollar against all currencies at points of local decline.


Gold

After last week’s sharp decline, gold is recovering well and is trading above its key level of $1500 per ounce. We can assume that gold will continue to grow to the next key levels. Investors will be able to close the lack of liquidity from the very cheap help of the states, rather than from selling the precious metal. Therefore, all conditions are created for growth.


Oil

There are big problems with oil in the market. We can say that if production volumes do not decrease, we will get a real crisis of excessive consumption. According to some estimates, in April we should expect an imbalance between production and demand of 10 million barrels per day. If nothing changes, we will see an average excess of supply before demand of 6 million barrels per day. The world’s vaults are 76% full. Such excess production is likely to bring the price of oil even lower, down to $10 per barrel.


What’s waiting for us today?

09.30 Index of business activity in the German manufacturing sector
14.00 New home sales in the US
21.30 Weekly crude oil reserves in the USA


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.